AlternativeSoft is a Swiss
company that aims to stay the leader in quantitative portfolio construction
with hedge funds and to become the leader in hedge funds quantitative selection
and tactical asset allocation for hedge fund indices.
The main goal of the system
was the creation of a Hedge Fund Optimization solution and risk management
system. A hedge fund is an investment fund charging a performance fee and
is typically open to a limited range of investors. Investing in hedge funds
requires knowledge of the extreme risks, which are always undergoing the
increased scrutiny of both investors and regulators. It is a common thing
that taking financial decisions supported by solid scientific models is
the best way to add value to investors' portfolios in the long run and to
outperform their peers. The specific complexity of the hedge fund industry
requires state-of-the-art financial solutions.
The HFOptimizer platform includes three modules:
- Module I: Portfolio
The HFOptimizer platform
optimizes the fund of funds or the portfolios containing hedge funds.
It uses the Modified VaR, the Conditional VaR, the Maximum Drawdown,
the Local Correlation or the Mean-Variance optimizations. The optimizations,
based on the Value-at-Risk, are in line with the market risk regulations
proposed by the Bank for International Settlements (BIS, Basel II, 1996).
The use of downside risk optimization techniques allows the user to
construct portfolios with low probabilities of extreme negative events.
The volatility, the skewness and the kurtosis are taken into account
in the optimizations.
The speed makes it one
of the fastest available on the market. In addition, the user has the
ability to adjust manually his current portfolio by selling / purchasing
the assets with the lowest / highest contribution to portfolio volatility
or beta. This module includes data reading from Excel workbooks or some
market databases, portfolio simulation, shortfall risk analysis, stress
testing and hedge fund equilibrium returns using the Four-Moment Capital
Asset Pricing Model.
II: Hedge Fund Selection
The HFOptimizer platform
gives a rating to the funds by combining a quantitative and a qualitative
rating. The quantitative rating incorporates several criteria, but is
mainly based on a cutting edge stepwise regression with a Sharpe based
style analysis. The alpha of the manager over time is computed. The
qualitative criteria can be tailor-made by the user. As the rating is
fully automated, selecting the best assets easily creates the portfolios.
The use of this new method offers a competitive advantage for the fund
of funds manager. This technique, to select the best future hedge fund
performers, has been published by academics in 2004. Each rated asset
is downloadable to Excel reports.
- Module III: Return
The HFOptimizer platform
integrates a Tactical Asset Allocation module. Each hedge fund's indices
are forecasted for the next 1 to 6 months. A stepwise regression with
lags based on significant economic factors is used. This technique is
used to forecast the hedge fund or hedge fund index returns.
Results have proven to beat
any competitor, with Information Ratio (i.e. out-performance above benchmark
divided by the tracking error) up to 3.0 and with annualized alphas often
between 1% and 4%.
Benefits for the customer
Used Technologies and Products
The application uses Delphi,
SQL/PLSQL, XML, WebSnap, VBScript programming technologies under Windows
9x/2000/XP operation system. MS SQL 2000/2005 and Firebird 1.5/2.0 database
management systems supported for store software data. Software is fully
multi-user. For keeping software clients data actual the software provides
online updates using AlternativeSoft web service by HTTP and SOAP protocols.
The project team is currently
composed of 10 developers and has been in progress since 2005.
ITC Software is an advanced information technology
solutions provider, focused on the global commercial and scientific
With over 4047
software engineers in the Americas, Europe, Russia and
Asia, and a host of world-renowned scientists at, inter alia, Harvard
and MIT, ITC Software’s services range from research & development in
finance, bioinformatics and FEA engineering, to cutting-edge custom
software development and maintenance services in most industry
verticals, to the turnkey establishment of Offshore IT Centers.
ITC Software has won numerous international awards and its centers are
ISO 9001:2000 certified and CMMI level 4 pre-certified. Pricing is
extremely competitive for both complex scientific applications such as
bioinformatics and biomechanics, and commercial software development
Become a high performance enterprise with Strategic Outsourcing, visit
ITC Software disclaims the implied warranties of merchantability
and fitness for a particular purpose and makes no express
warranties except as may be stated in its written agreement with
and for its customer. In no event is ITC Software liable to
anyone for any indirect, special or consequential damages or
lost profits. The information and specifications in this
document are subject to change without notice. © ITC Software,
2010. All Rights Reserved. VERSION 1.10 RK20072010-2
A Sampling of References
«When dealing with funds and funds of hedge funds, the AlternativeSoft’s
platform is a required software that can easily deal with extreme risks
in portfolio construction that no other software does today.»
Professor of Finance, State University of New York
Editor of the book «Hedge Funds: Insights in Performance Measurement, Risk
Analysis and Portfolio Allocation», 2005
«AlternativeSoft is the leader in providing quantitative solutions and
applications to the Fund industry. We believe the great success achieved
so far is partly thanks to the quality and solid scientific foundations
of AlternativeSoft programs and partly due to the user friendliness of the
Mailoc López de Prado
Director, Head Quantitative Equity Research
UBS Wealth Management
Author of the book «Investir in Hedge Funds», 2004
«AlternativeSoft is a practical and user friendly tool used as part of
our portfolio construction and risk management process. Their extensive
support and responsiveness provides added value.»
Managing Director, Head of Risk Management and Portfolio Construction
Ramius Alternative Solutions LLC
«AlternativeSoft is the only company that provides serious quantitative
solutions dedicated to serious hedge fund investing.»
Head of Research, Kedge Capital
Professor of Finance, HEC Lausanne & EDHEC
«AlternativeSoft is easy to use and a valuable tool for our fund of funds
investment process. Ongoing support has been efficient and prompt.»
Universities Superannuation Scheme (USS)