Systematic Core and Core-Satellite Strategies using by Hedge Funds and its Performance Improving

This paper is devoted to the systematic core and core-satellite strategies of hedge funds. Systematic investing aims to deliver superior market returns through a repeatable, risk-managed approach, providing added value to the clients. Systematic approaches maximize edge through breadth, i.e., by spreading independent "bets" across expansive investment universe and over time. To do so, portfolio construction involves careful modeling of trading costs and position sizing relative to available liquidity on both the long and short sides. Given this approach, a systematic hedge fund may be able to offer investors a higher degree of liquidity, and appropriate specific liquidity requirements can be applied to the portfolio construction of the individual sub-strategies (even influencing signal selection). In an environment in which some systematic hedge funds have extended lockups beyond two years and many private market investors are starved of distributions, liquidity in systematic hedge fund certainly would be welcome. Today's systematic core and core-satellite strategies should be based on including equities, ETFs and fixed income. Investors have a well-documented tendency to exhibit a home bias. Given how globalized the economy became, where countries outside the US represent 75% of nominal global GDP, international equities are essential to broaden reach, mitigating any home bias tendency. By connecting dealer to investor and investor to other investors, systematic core and core-satellite strategies can source or offload assets to better capture or defend alpha in this cutting-edge market structure. Systematic strategies can be improved via streaming execution on liquid, recently issued paper and/or actively traded bonds giving participants access to live, actionable prices. By bringing live orders and live market-maker prices together anonymously, portfolio managers can trade in a distinctive institutional liquidity pool. Not just any systematic investing approach will deliver the sufficient skill and diversity to drive a systematic hedge fund. Key attributes include a data platform that is broad enough to support investment decision making in diverse contexts and that contributes to skill by offering unique data sources and proprietary enrichments. Forecasting models should reflect both the intent and analytical sophistication to distinguish alpha from risk, and they should be validated by rigorous and exhaustive efficacy testing. To ensure that they can support diverse sub-strategies, predictive models should be specialized for distinct contexts (such as asset classes, market segments, or investment horizons) and special market circumstances, even though they are developed in a consistent analytical framework and leverage sharable intuition, methods, data and even signals. The investing philosophy and process should be flexible enough to be applied to capitalize on opportunities that arise from temporary phenomena. Costs. Systematic approach naturally reduces cost pressures associated with the decentralized multiasset and management structure. First, it better aligns incentives of portfolio managers and clients. As a collaborative enterprise, systematic investing platform does not face the dissonance created by bidding for free-agent talent based on their standalone performance when limited partnerships are receiving a composite returns stream. Second, systematic investment processes, by nature, are designed to scale, thus providing a more natural basis to cover broad investment universes required to populate robust systematic hedge funds than the narrow and resource-intensive discretionary investing approaches that are so closely identified with pod structures. Third, compared to a more compartmentalized multi-asset and multi-manager structure, it is expected that usage of systematic core and core-satellite strategies gives greater cost efficiencies from integrated research and efficacy testing environment where, from the outset, data and analytical infrastructure and resources are designed for maximal breadth and flexibility of use. Digital tools. Investors should not be on the sidelines or merely interested observers during this remarkable age of digital transformation. Yet, finance has significantly lagged other fields in embracing new technologies and advanced data-modeling techniques, i.e. tools that investors could be using to identify alpha opportunities for systematic core and core-satellite strategies and act on trends in the market. Principles of core and core-satellite portfolio construction Key principles of core and core-satellite portfolio construction are given below.  Creating and refining a library of alpha sources. Successful systematic hedge fund should maintain a research and development (R&D) process to continually build and refine a library of alpha sources and components, including proprietary construction of classic factors and risk premium.