The aim of this document is to show the real life application of the ‘Style Analysis’ feature applied to a hedge fund claiming delivering alphas. We will show how to analyze a fund in terms of its alpha and sector selection skills. Galleon has been selected as fund in order to show how the ‘Style Analysis’ can be used as part of the due diligence process by highlighted anomalous monthly alphas. In the next 4 pages, several steps and results are presented.

Thus begins a five-page and five-step analysis from AlternativeSoft, available here, from Hedgeweek.

AlternativeSoft, in case you haven’t heard of it, is a Zurich-based “software solutions provider” for hedge fund selection. And their analytical process for Galleon — the New York hedge fund being investigated for insider trading — involves very complicated stuff like replicating Galleon’s buy and hold strategy and computing the return differential between that and its monthly returns. In the end though, what you get is the below table, click to enlarge:

That’s Galleon’s historical alpha, by month, with the high alphas are in red and the low alphas in green.

What you can see from the table then, is that a few of Galleon’s historically high alpha-producing months were July 2006, 2007 and 2008.

According to the SEC complaint, Galleon Management LP stands accused of acting on insider tips in July 2007 and 2008, among other dates.
(H/T Alea).

Related links:
The Galleon rat pack – The Long Room
A closer look at Galleon’s returns – FT Alphaville
The Galleon index – FT Alphaville
“Put ya money on Galleon” – Rajaratnam’s rap sheet – FT Alphaville

This entry was posted by Tracy Alloway on Monday, November 16th, 2009 at 9:15 and is filed under Hedge funds. Tagged with AlternativeSoft, Galleon, Raj rajaratnam, sec. Edit this entry.