ebook essays pieces of the puzzle
Thursday, December 5th, 2013
the gateway

13 1205 zGATEX

The Gateway Fund (GATEX) played a cameo role in the Madoff affair.  In 2001, MAR/Hedge published a piece entitled, “Madoff tops charts; skeptics ask how.”  It identified a long list of potential issues, basically laying it all out there more than seven years before the denouement.

Within the body of evidence was this:  “The best known entity using a similar strategy, a publicly traded mutual fund dating from 1978 called Gateway, has experienced far greater volatility and lower returns during the same period.”

Above is a chart showing the performance of GATEX from the date of that article.  The strategy is essentially this:  The fund buys a representative subset of S&P 500 stocks, sells nearby calls on the index, and buys puts a bit below the current level.  What you get is what you see above, a stream of returns that is highly correlated to the S&P 500 but much less volatile.

At $8 billion in assets, it’s one very profitable fund.  Bernie could have lived off of it.  (Chart:  Bloomberg terminal.)

Don’t miss the goodies below that appeared this week on my other sites.

years of experience

The original website in the group features essays on investment process, decision making, organizational behavior, and the industry.  The current question is whether years of experience is additive in an investment team.  (You might also check out the recent piece on consistent and repeatable process.)

culture wars and people alpha

A recent white paper about hedge funds focusing on organizational development, plus the work of a couple of consultants I know got me thinking about culture wars and people alpha — a perfect topic for my “scrapbook” of ideas.

new edition of the newsletter

Every few weeks I write a newsletter called The Prudent Fiduciary Digest, which selects readings of importance for institutional investors.  The latest edition features items on new active strategies, Jim Leech and the innovative Ontario Teachers’ Pension Plan, infrastructure investments, and hedge fund fees.  You can see back issues and sign up for future ones here.

seek other dimensions

“Specialization causes a lot of bad thinking.” — Charlie Munger