Hedge funds: an analysis of the translator's preface

Preface to The Translator of Hedge Funds: An Analytical Perspective (the preface was slightly revised when the book was published)

At noon on June165438+1October 18, 2008, I stood in the corridor of an office building in Pudong and stared at the gray sky in Lujiazui. At this time, I received a phone call from Dr. Li Ji from Dongbei University of Finance and Economics Press, asking if I would like to translate a book about hedge funds.

I can't help secretly admiring her. I think she really has a good eye. 10 On June 5th, the CSRC just announced the launch of the pilot project of margin financing and securities lending, and just organized relevant brokers to participate in the online test of margin financing and securities lending, and she targeted hedge funds. "I'll send you the original, so you can have a look first," she said.

A few days later, I received the original. When you open it, the paper is full of liquidity, sequence correlation, factor model, various formulas, color maps drawn by Matlab or Excel at a glance, and there are twenty or thirty pages of references. There is a Matlab program attached to the back of this book, and I immediately have an impulse to input it into the computer and run it again. I'm afraid this book has academic value. I thought while reading the title and the author's name. When the name Andrew W. Lo jumped into my eyes, I couldn't help but move my heart and quickly picked up my mobile phone and sent her a short message: "The author of this book is Luo Wenquan! Luo Wenquan! Don't worry, I will take it seriously! "

First, Luo Wenquan and his academic achievements

In western financial circles, Andrew Luo Wenchuan is a famous financial economist (see "Further Reading" below for his personal homepage). However, for most teachers and students majoring in finance in China universities, this name is quite strange. For example, the Chinese version of his book "Econometrics of Financial Markets" actually translated its name into "Andrew W. Rowe". Even after seven years, 20 10, a book about hedge funds translated it into "Andrew Rowe".

Luo Wenquan, 1960 was born in Hong Kong in April, and has lived in Taiwan Province Province, China since then. At the age of five, Tam Quan's family emigrated from Taiwan Province Province to new york. His mother Julia Yaoluo (about 1927-) is a great woman. Under her careful guidance, Luo Wenquan's sister and brother have successively won the Westinghouse Science Genius Juvenile Award, which is known as the Junior Nobel Prize. Later, Tam, the third child, advanced placement from the eighth grade to the famous Bronx Science High School. After studying hard, she also won this award. It's really a house of genius. It's a story for a while. Later, all three gained worldwide academic reputation, which was inseparable from their mother's education.

We know very little about Luo Wenquan's sister and brother. In Peter L. Bernstein's Evolution of Capital Thought (Chinese version of Investment Revolution), it is said that his sister is a molecular biologist and his brother is a rocket scientist. The translator speculates that his sister is Cecilia Wen-ya Lo (abbreviated as Cecilia W. Lo, transliteration of Luo, about 195 1-), and she is also a great woman. 1974 received a bachelor of science degree from Massachusetts Institute of Technology, and 1979 received a doctorate in cell and developmental biology from Rockefeller University. 65438-0980 Engaged in postdoctoral research in School of Pharmacy, Harvard University. Since then, she has served as a professor in the Department of Biology at the University of Pennsylvania, director of the Developmental Biology Laboratory at the National Institutes of Health (NHLBI) and director of the Center for Genetics and Developmental Biology. She is now a professor in the Department of Developmental Biology, School of Pharmacy, University of Pittsburgh. She is a famous molecular biologist and congenital heart disease expert. Her husband, Rocky S. Tuan, is a world-famous hepatocyte biologist and tissue engineer, and he has similar travel and education experiences. They got married on 1976 and went to teach at the University of Pittsburgh together in the summer of 2009.

The translator speculated that Luo Wenquan's brother was Martin W. Lo (about 1953-). 198 1 obtained a doctorate in mathematics from Cornell University, and then worked for Theodore? Feng? Theodore von Kármán, Qian Xuesen and others founded NASA's Pasadena Jet Propulsion Laboratory, and put forward the world-famous "Interstellar Highway" technology in 200 1 year.

From 65438 to 0977, Luo Wenquan graduated from Bronx Science High School and was admitted to Yale University. He plans to study math, physics and biochemistry, because these subjects look "cool", which is also the major of his sister and brother. However, at the end of the first semester, he met a high school classmate who was studying economics at MIT. At her suggestion, he went to MIT to study Professor Robert C. Merton's finance course (1997 Nobel Prize winner in economics). Since then, economics and finance have aroused his interest.

When he was in Bronx Science High School, he read the Basic Trilogy by science fiction writer isaac asimov, in which a mathematician founded a theory of human behavior called psychohistory. According to this theory, psychohistory can accurately predict the future based on a large number of data about human emotional tendencies. Luo Wenquan thinks Asimov's description is completely feasible, and he wants to be the person who realizes it. Economics, especially game theory and mathematical economics, seems to be the best starting point for this study. Therefore, he devoted himself to studying economics, and 1980 obtained a bachelor's degree in economics from Yale University, and 1984 obtained a doctorate in economics from Harvard University. 1985- 1989 is a researcher at the National Bureau of Economic Research (NBER), among which 1987- 1988 is an associate professor of finance at Wharton School of Business. From 65438 to 0990, 29-year-old Luo Wenquan became a tenured professor at MIT. Since then, he has stayed at MIT and founded the MIT Financial Engineering Laboratory at Si Long School of Management. The laboratory has gathered a large number of famous financial economists, so it represents the highest level of financial engineering in the United States. In 2004, Luo Wenquan was elected as the youngest member of Academia Sinica in Taiwan Province Province.

Luo Wenquan is recognized as a financial economist, a leading figure in financial engineering, the founder of hedge fund research and bio-finance, and the first financial economist in China. From 65438 to 0998, American Businessweek rated him as one of the three most promising new stars in financial academia. In Peter L. Bernstein's Evolution of Capital Concept, the story of Paul Sameulson (May 2005 19 15 to February 2009 13) is told. 1970 Nobel Prize winner in economics), Merton (Robert C. Merton, 1944- 1997 Nobel Prize winner), Luo Wenquan, robert shiller, Sharp (Willam Sharp, 1934-,1. 1927- 1990) and scholes in this way, it is not impossible for Tam spring and shearer to win the nobel prize in economics in the future.

Luo Wenquan's research fields cover financial theory, financial information technology, risk management, portfolio management, hedge funds and financial econometrics. He is ambitious to establish a theory that can predict people's behavior in the financial market as described by Asimov. His most famous contributions include: putting forward the variance ratio test in 1988, pointing out that the stock price is not satisfied even for the generalized random walk hypothesis; It is pointed out that the classical dogma in the Financial Efficient Market Hypothesis (EMH) is not valid, and the Adaptive Market Hypothesis (AMH) is proposed to replace EMH. Created bio-finance; The classical Markowitz analysis framework of finance is developed, and the mean-variance-liquidity analysis framework is put forward. Wait a minute. Like his mentor Merton and others, Luo Wenquan's research is closely related to practice. He is a master of hedge fund research and the founder and partner of hedge fund Alpha Simplex Group.

Luo Wenquan has published a large number of first-class papers and works (see personal homepage), which can be described as works. His book Econometrics of Financial Markets, co-authored with John Y. Campbell and A. Craig MacKinlay, won the 1997 paul samuelson Prize and became a classic textbook of financial metrology. In September 2004, when I was a doctor at Peking University, my first class was this course. I still clearly remember that at the beginning of the class, the classroom was crowded with students who wanted to take this course, but it was really difficult. Professor Wang Yiming talks a lot on the podium, but everyone is like a gobbledygook. At the end of the first class, half of them ran away. By the end of the third class, only about 10 people were left. I often pricked up my ears and trembled for fear of missing a word. Fortunately, I persisted until the end, and I read the relevant papers written by Tam Quan in the middle, and I regarded him as an idol from then on.

The original works read by readers were published in 2008. The book includes 10 chapter and consists of a series of high-end academic papers published by Professor Luo Wenquan. This book pays equal attention to theory and practice and has extremely high academic value. Once published, it won a high academic reputation. After reading this book, you can not only have a deep understanding of the American hedge fund industry, but also have an understanding of Professor Luo Wenquan's research methods and academic thoughts. Unfortunately, however, for various reasons, I have repeatedly delayed the delivery date, which has actually been delayed for a long time.

Second, hedge funds and their impact on China

Margin trading and stock index futures are coming, can hedge funds be far behind?

In America, hedge funds have a history of more than 60 years. In the financial crisis of 1998 and the international financial crisis since 2007, hedge funds have had a huge impact on the financial market, which shows that hedge funds have become a new force and a new source of systemic risk in the financial market. The U.S. government has also made unremitting efforts to put hedge funds in iron cages (see chapters 7, 9 and 10 of this book).

At present, institutional investors in China's capital market mainly include thousands of public securities investment funds and special account wealth management products issued by more than 60 public securities fund management companies, collective wealth management products and special account wealth management products issued by asset management departments of securities companies, wealth management products issued by commercial banks, insurance funds held by bond investment departments of commercial banks, self-operated departments of securities companies, trust companies and insurance companies, qualified foreign institutional investors (QFII), and private investment funds issued by thousands of private equity fund companies. These institutional investors can be collectively referred to as "funds". 20 10 before April, institutional investors in the A-share market can only go long and not short. Although some institutions will participate in some fixed-income arbitrage, event-driven, endangered securities, fund-based or convertible arbitrage strategies, their scale and depth are limited and they cannot carry out typical "hedging" business. No public issuer has positioned itself as a hedge fund, and few private equity funds claim to be hedge funds.

20 10/0,6543810.8, the State Council agreed in principle that securities companies should carry out margin financing and securities lending pilot projects and launch stock index futures. /kloc-on March 9, 2008, it was announced that six securities companies, including Everbright Securities, Guotai Junan Securities, Guangfa Securities, CITIC Securities, Haitong Securities and Guo Xin Securities, had taken the lead in launching the pilot margin trading, and the pilot trading was officially launched on March 30. Since then, on June 8, 20 10 and February 25, 12, the pilot scope has been expanded twice, and the number of pilot brokers has reached 25, accounting for about a quarter of the total number of brokers in China. On April 2010/6, Shanghai and Shenzhen 300 stock index futures were officially listed. If there are no accidents, 20 1 1 launched refinancing business to expand hedging business.

The launch of margin trading and stock index futures is an epoch-making event in the infrastructure construction of China stock market, which indicates that the A-share market has got rid of the restriction that it can only do more and it is difficult to use leverage, and can conduct long-short two-way trading. More importantly, it also means that China will usher in the era of great development of hedge funds. As long as the policy allows, more and more private investors and even Public Offering of Fund companies will issue hedge funds, including long-short stock hedging, short-selling preference and managed futures.

On April 23rd, 20 10, China Securities Regulatory Commission issued "Guidelines for Securities Investment Funds to Engage in Stock Index Futures Trading" and "Guidelines for Securities Companies to Participate in Stock Index Futures Trading", which put forward specific requirements for investment strategies, participation procedures, proportion restrictions, information disclosure, risk management and internal control system of fund investment in stock index futures, and made clear provisions on issues related to securities companies' securities proprietary business and securities asset management business participating in stock index futures trading. On July 7, 20 10, the CSRC announced that the fund special account wealth management business can participate in stock index futures trading. "Considering that special account wealth management is a non-public offering product, its investors are all investors with strong risk identification ability, risk tolerance ability and self-protection ability, therefore, the general principle of special account wealth management business participating in stock index futures trading should be based on the autonomy of the parties, and the regulatory authorities will no longer pay attention to the investment purpose, investment ratio and self-protection ability of special account wealth management business participating in stock index futures trading. 20 1 1 In March, China Securities Regulatory Commission issued "Guidelines for Trust Companies to Participate in Stock Index Futures Trading (Draft for Comment)", from which Sunshine Private Equity Fund will be allowed to participate in Stock Index Futures Trading, which means it will carry out "hedge fund business".

In fact, after April of 20 10, the intraday volatility of Shanghai and Shenzhen 300 stock index futures and Shanghai and Shenzhen 300 index, as well as the continuous expansion of margin financing and securities lending scale, all indicate that more and more institutions may engage in hedging business. In the middle of 20 10, the translator learned that many large Public Offering of Fund companies are studying the hedge fund business, and once the policy is liberalized, they will apply for the establishment of hedge funds such as long and short stock hedging and managed futures. 2065438+0010 In mid-February, SDIC UBS Fund Management Company set up a "one-to-many" special account wealth management product with futures index arbitrage strategy, which actually belongs to hedge funds. At the end of 20 10, the China Securities Regulatory Commission issued the Reply on Approving Shanghai Guotai Junan Securities Asset Management Co., Ltd. to set up a specific aggregate asset management plan with quantitative limit for Guotai Junan (CSRC Permit [2065 438+00] 1937), allowing the company to issue a collective wealth management product "Xiang Jun Quantization". The investment strategy of this product is "adopting market-neutral strategy, on the basis of hedging market systemic risks as much as possible (controlling the Beta value of the portfolio between -0.3 and 0.3), using quantitative stock selection and index arbitrage strategy to obtain long-term stable absolute returns." On March 7th, 20 1 1, "Xiang Jun Quantization" was officially released, which was sought after by investors and raised 500 million yuan in one day. This is the first hedging product designed in strict accordance with the Detailed Accounting Rules for Stock Index Futures Investment of Securities Investment Funds (Trial) after it was issued on 20 165438+1October 25th, and it is recognized as the first official hedge fund in China, thus becoming the "China" in 20165438. Almost at the same time, E Fund Management Co., Ltd. also launched a "one-to-many" wealth management product with hedging strategy. It is expected that hedge funds will appear like mushrooms after rain in a year or two.

The emergence and vigorous development of hedge funds in China will have a profound impact on at least three participants in the capital market:

First of all, it will promote the changes of institutional investors' investment strategies, investment ideas, research methods and risk management, and will intensify the competition among institutional investors, thus greatly improving the efficiency of China's capital market and reducing the expected rate of return. Therefore, uncompetitive institutions will be phased out, and even the organizational form of funds may be changed. This is similar to Luo Wenquan's adaptive market hypothesis and bio-finance. Previously, there were retail investors, Public Offering of Fund and private equity funds in China's financial market, and later, hedge funds, a booming new species, were added. "With the increasingly fierce competition, resources will eventually drop sharply, which will lead to a decrease in the number of organisms, thus reducing the level of competition and eventually leading to the restart of the cycle. Sometimes, the cycle will converge to a corner solution, that is, some species will become extinct, food resources will be completely exhausted or environmental conditions will change dramatically "(see Chapter 9 of this book). In the future, the changes in the competitive format of institutional investors will also accelerate, competitive institutions will rise faster, and uncompetitive institutions will decline or even withdraw from the market faster. Investment managers are under greater pressure to survive because they must have a higher professional level. Hedge funds will also become a new source of systemic risks, and an accidental event can cause a devastating blow to many institutional investors with good investment ability (see Chapter 7 of this book 10). In this era full of changes, the "hipsters" who can adapt to changes the fastest can survive. These are all issues that deserve the attention of fund practitioners.

Secondly, it will bring new challenges to securities analysts (mainly working in the research department of securities companies) who provide consulting services for institutional investors. At the same time, securities analysts are also fiercely competing for their own resources-institutional investors' commission and evaluation. From 2003 to now, the ranking of "New Fortune" and "Best Securities Analysts" in China from June 65438 to 10 every year has been the main position for analysts and research departments of securities companies. The top 20 research departments of securities companies in China mostly decide the salary of analysts according to the ranking of New Fortune. The higher the ranking of "new wealth" of analysts, the greater the market influence and the more commissions they earn for their research. But the analyst's research belongs to commercial research, not rigorous academic research. As an investment strategist of a fund company, the translator is well aware that the saying that the analyst industry "20% depends on research and 80% on bluffing" is not entirely a joke. In the long run, this competitive format will gradually change, and the development of hedge funds will promote and accelerate this change. Future analysts must have a broader vision, more comprehensive knowledge, higher research ability, deeper mathematical knowledge and modeling level, and better stock selection and timing ability, requiring them not only to give buying advice at the right time, but also to give short advice at the right time. Analysts who lack mathematical knowledge and modeling ability, have solid professional knowledge, and mainly rely on "fudge" to blend in the market are hard to stand on. The same is true of the research department of securities companies composed of analysts. Moreover, the increase of systemic risk will affect the commission amount obtained by the research department of securities companies, increase the fluctuation of commission amount, and even affect the performance of the whole securities company (although the commission income of consulting business accounts for a small proportion of the total profits of securities companies).

Thirdly, as the capital market supervision department, China Securities Regulatory Commission must consider how to effectively supervise hedge funds. According to international experience, under certain circumstances, the behavior of hedge funds may have a severe impact on the financial market, so how to supervise hedge funds has always been a hot topic in academic circles and management. So far, the United States has not established a legal framework and institutions to supervise hedge funds (see section 9.4 of this book). Like American hedge funds, China's private equity industry has been "outside the three realms and five elements" for many years, and there is no special regulatory law. They may be the main body of future hedge funds.

However, strengthening supervision is an international trend, and China is no exception. 201165438+1In mid-October, the Securities Investment Fund Law (Revised Draft) was officially promulgated. Article 2 stipulates: "This Law is applicable to the public or non-public raising of funds, the use of raised funds to set up securities investment funds, which shall be managed by fund managers and the securities investment activities for the benefit of fund share holders." The securities mentioned in the preceding paragraph include buying and selling unlisted stocks or equity, listed stocks, bonds and other securities and their derivatives, as well as other investment transactions stipulated by the supervision and administration department of the State Council, thus bringing all kinds of institutional investors in the capital market into the scope of supervision. In addition, Chapter 10 of the revised draft "Special Provisions on Non-public Offering Funds" clearly includes private equity funds in the scope of supervision. Obviously, alternative investment, which is still in its infancy, will also be included in the scope of supervision of this law, which is undoubtedly in line with the international trend of strengthening supervision of hedge funds. Like hedge funds in China, the supervision of hedge funds in China will be explored in the process of development.

In short, the development of hedge funds will have a great impact on all individual participants, institutional participants and regulatory authorities in the capital market. In addition, it will also promote the research work in academic and theoretical circles. Although China has translated and published three or four books about hedge funds, their academic value is limited. As a book that systematically introduces hedge fund investment and has profound academic value, this book fills the gap in this respect. Moreover, because it is difficult to obtain special data, most domestic scholars focus on the qualitative analysis of hedge funds. The vigorous development of hedge funds in China will inevitably give birth to specialized hedge fund databases such as CS/Tremont and Lipper TASS, and specialized hedge fund research institutions such as HFR, which will promote the improvement of domestic research level. The translator boldly guesses that in the near future, hedge fund course will become a compulsory course for financial majors in colleges and universities.

Third, the translation process and thanks of this book

Over the years, China's rigid academic system, personal income tax system and the enormous pressure of scholars' survival and life have made capable and rigorous scholars unwilling to engage in translation work, while some impetuous translators, including professors from many famous universities, have taken the opportunity to become popular, ignoring academic ethics and taking translation as a means of gaining fame, resulting in a large number of world-class academic works being ruined by inferior translators, which has made countless students grieved. I was deeply touched by this during my study. Over time, people prefer to read the English original directly, away from the Chinese version. However, not everyone has the ability, time and energy to acquire and read English literature, which leads to the lag of Chinese people's understanding of foreign excellent works. The name of a world-class scholar like Luo Wenquan is rarely known in China, which is an example.

Out of respect for Professor Luo Wenquan, I made up my mind to translate this book well. At one point, I even planned to translate his book "Non-random Walk on Wall Street" published by Kloc-0/998 into Chinese. But how difficult it is to do a good translation! The hardships of translation can never be understood without personal experience. A qualified translator should not only have excellent knowledge of Chinese and English, profound professional knowledge and extensive knowledge, but also have a peaceful mind, want nothing, sit on the bench and work hard, and must never regard it as a means to gain fame and gain profits, otherwise it will only ruin the original work (there are countless such evil cases). The original only has more than 300 pages, but I spent one or two thousand hours translating it-I locked myself in a rented room after work and spent almost all my spare time on it, becoming a veritable "otaku", just trying to pretend to be innocent.

The translation of professional documents, especially the translation of the word "Xin", must accurately convey the meaning of the original author to the readers in China, so you should never pretend to understand and guess at random when translating. On the basis of "trust", try to "achieve" But "it is difficult to win the trust" and the word "da" is even more difficult. As for the word "ya", we dare not pretend to be. For these unlucky beliefs, I spent a lot of time looking for information, trying to accurately understand the author's original intention.

In addition, in order to make it easier for readers to understand and get more information, I also wrote a translator's note of nearly 120 in the book. These annotations can be roughly divided into three categories: the first category is to point out the mistakes in the original work, accounting for about10%; The second category is to explain and supplement the original intention, so that readers can understand the text more thoroughly, accounting for nearly 90%; The third category is the translation of technical terms, with only a few articles. Sometimes it takes seven or eight hours to find information in order to write a good note. Moreover, in order to ensure the quality, I dare not find a partner, because usually a good English major foundation is not necessarily good, and a good professional foundation is not necessarily rigorous. According to my experience, a teacher with a bunch of books translated by students is often more likely to make mistakes. So, I translated and proofread the book from beginning to end, calculated and verified some data in the book, and drew some graphics with the data and programs provided in the book. This persistence has seriously damaged my health. I often feel uncomfortable because I have been sitting at my desk for too long. I feel that I can't stand it anymore. I regret that I shouldn't have taken this job on impulse and wanted to give up. The idea that supported me later was that after translating this book, I would never set foot in this kind of work again!

However, translation is not without benefits. It forced me to read through the book and helped to reverse my bad habit of not being able to settle down to study after work. 19 18 In April, Einstein gave a speech at the celebration held by the Berlin Physical Society for Max Planck's 60th birthday. He said, "First of all, I agree with Schopenhauer that one of the strongest motives to lead people to art and science is to escape the disgusting vulgarity and despair in daily life and get rid of the bondage of people's free and changeable desires. A cultured person is always eager to escape from personal life and enter the world of objective perception and thinking, which is my great concern.

The first draft of this book was completed on June, 2065438 10. After that, I went home to visit my parents for a week, accompanied my 70-year-old father in the hospital for intravenous drip every day, and revised the second draft on my deathbed. The fifth draft was finally submitted to the editor. I often think that if I hadn't had such a strong thirst for knowledge since I was a child and read so many books, I wouldn't have been bewitched by China's traditional intellectuals' thought of "taking the world as my duty", never dreamed of making peace, never formed the bad habit of honesty, frankness and preciseness, but settled for being ordinary, tactful, abandoning ideals and pursuing money. I wouldn't have studied for so many years and taken so many detours to let them earn money to support their parents as soon as possible. However, the past cannot be remonstrated, only sighed!

In the process of translation, My mentor ................................................................................................................................................... .................... Finally, I would like to thank Dr. Li Ji from Dongbei University of Finance and Economics Press and Ms. Wang Ling, the editor, for their hard work and warm help. As for the shortcomings in the book, I am responsible. Please write to me when you find the shortcomings, so that I can correct them in the future revision.

September 6th, 20 10, Shanghai Longan Apartment.

20 1 1May 15 was modified in Hongqiao Road, Shanghai.