Hedge Fund & Style drift

Discussion in 'P2.T8. Investment Management (15%)' started by rahul.goyl, Nov 5, 2009.

  1. rahul.goyl

    rahul.goyl Member

    Hi David,

    Could you plz explain this one.

    The Peyton Formika Fund is a global macro asset allocation hedge fund designed to provide low correlations with U.S. assets. Dominic James is a fund of hedge funds manager that is analyzing the Peyton Formika Fund for signs of style drift. James makes note of the following findings about the fund:

    I. The R2 of the fund versus the global macro peer group has changed from 0.72 to 0.78 over the past 12 months.
    II. Due to outstanding returns, assets in the fund have increased from $70 million to $430 million over the past 12 months.
    III. The fund made a major shift in allocation by moving 40 percent of its holdings from Eastern European equities to Asian equities.
    IV. After a recent trip to India, the fund manager gained confidence in his existing Indian equity holdings and levered his existing 5% weighting in India by a 10 to 1 ratio.
    Which of James’ findings are indicators that the Peyton Formika Fund is at risk for style drift?
    A) I and II.
    B) II and III.
    C) II and IV.
    D) I, III and IV.


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