Andrew Beer - Replicating Hedge Fund Beta (S5E9)

Flirting with Models

My guest in this episode is Andrew Beer, co-founder of Dynamic Beta Investments.

Andrew has spent the last 15 years trying to pioneer the adoption of hedge fund replication strategies. The core thesis is that several hedge fund categories can be dynamically replicated using just a handful of liquid market exposures and some regression techniques. He argues that if he can deliver the strategy beta while cutting out hundreds of basis points of management fees and trading costs, it would consistently earn him a top decile rank. And all this can be done in a daily liquid vehicle.

The Devil, of course, is in the details. Which categories can be replicated is an important consideration. Whether to perform a bottom-up or top-down replication is another. And, obviously, which factors to incorporate. Andrew stresses that the answer to all these questions comes not from quantitative analysis, but from a qualitative understanding of how hedge fund managers actually operate.

This episode may not be as technical as others, but it certainly had me walking away thinking, “if there’s no points for originality, it certainly seems a lot easier to just copy the work of others. Especially if I can cut out all their fees.”

Please enjoy my episode with Andrew Beer.