Every year trillions of dollars in investment decisions are made based on a simple equation known as the Sharpe Ratio. In the investment industry, the Sharpe Ratio, first devised by then 32-year-old William Sharpe in his classic 1966 paper "Mutual Fund Performance," has become the dominant metric for portfolio construction.
In a groundbreaking research paper, Chris Cole, Founder & Chief Investment Officer at Artemis Capital Management uses the "moneyball approach", that what matters in sports is whether a player helps the team win, to prove out that what matters in investing is whether an asset improves the risk-adjusted returns of your total portfolio.
"Your goal shouldn't be to buy players. Your goal should be to buy wins. In order buy wins, you need to buy runs." - Peter Brand (aka. Paul DePodesta), Moneyball
In this study, Chris and the team at Artemis Capital Management have created a new measure for investment teams to use in their quantitative investment due diligence processes to replace the Sharpe Ratio:
COLE WINS ABOVE REPLACEMENT PORTFOLIO (CWARP)
CWARP is "wins over replacement" for the asset management industry. It is a one-stop-number that assesses whether alternate investments improve or hurt the pre-existing portfolio, measuring return, risk, and maximum drawdown altogether.
In this webinar with Chris Cole, Founder & Chief Operating Officer at Artemis Capital we discussed:
- The mechanics of CWARP and how was it established
- How Allocators to Hedge Funds can apply this metric effectively to screen and monitor potential and existing hedge fund investments
- The implications for investment teams who do not adopt their quantitative screening and investment monitoring processes to include CWARP
Watch the webinar recording
Christopher Cole, CFA
Founder & Chief Investment Officer
Christopher R. Cole, CFA, is the Founder & CIO of Artemis Capital Management LP. Mr. Cole’s core focus is systematic, quantitative, and behavioral based trading of volatility and derivatives. His decision to form a fund came after achieving significant proprietary returns during the 2008 financial crash trading volatility futures and options (verified by independent auditor). Cole’s volatility research is highly influential in derivative and macro trading circles and widely quoted by the financial press. His 2012 research paper entitled, “Volatility at World’s End” argued the equity options market was mis-pricing and hedging the wrong tail (left as opposed to right). The paper was credited with re-pricing long-dated volatility, and named one of the best macro-economic thought pieces of the last decade. Mr. Cole is a frequent speaker at industry conferences and in the media. He previously worked in capital markets at Merrill Lynch and structured over $10 billion in derivatives and debt transactions.
Chief Operating Officer at Allocator
With more than 10-years of experience in the investment software and data industry, Liam's primary focus is on managing day-to-day operations across the business to ensure that Allocator effectively serves its clients as the leading intelligence platform for institutional investors. Before joining Allocator, Liam was responsible for building out global client service operations for Morningstar Inc. and built high performing support and customer success teams across EMEA and APAC. Liam went on to hold several Sales Director roles, most notably managing some of the top global client accounts outside of the U.S. for Morningstar Inc., and spent a great deal of his time enhancing and building sales and marketing operations for the business. Liam holds a Bcomm in Investment Management & Marketing from Stellenbosch University.
Who are Allocator
Allocator is a software and data-as-a-service company, providing integrated data management, analytics and workflow solutions to the alternative investments industry. We empower private capital investors to boost efficiency and accuracy by transforming their operations and research processes. Our world-class analytics platform provides allocators easy access to all their investment data in a standardised and consolidated format, allowing them to focus on their core investment activities.