The Ledger
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Relying heavily on historical correlations for asset allocation is dangerous
“Historical correlations would be useful, but dangerous to rely on too much. And if you think about asset allocation, right, you're relying on your forecast of volatility, expected returns and correlations.”
Chalkstream's capacity-constrained core strategy maintained a 0.1 beta to the S&P
“That part of our portfolio's probably been. 0.1 beta or so to the S and P over the last five, six years. With pretty consistent alpha.”
Over-diversification prevents asymmetric bets from generating meaningful returns
“When you kind of dissect return drivers and if you become overly diversified, all of a sudden it really gets hard to allow those asymmetric bets to be meaningful.”
Cross-asset valuation requires standardizing investments down to unlevered yield
“And I think having that kind of asset class valuation framework to be able to kind of look at things and kind of, if you think about it, roughly dissect things down into an unlevered yield, right? You can do that for an equity, you can do that for a cap rate, …”
Chalkstream shorts overleveraged, declining Japanese companies via credit default swaps
“We have CDS positions in Japan. That's a whole nother bet where we think there's these massively levered companies that are trading at ridiculously tight CDS levels that we think are in industries that are in secular decline.”
South Korea's large equity market has very few quality hedge funds
“That's where in places like Korea, where it's a huge equity market and you can count the number of good hedge funds on one hand. So we think it's a secular play. That's why we built a business there, a hedge fund business there, and we expect to be there indef…”
Institutional-grade electricity trading teams are exceedingly rare
“We've probably met with 60 or 70 or so, but most of them are kind of small ex-utility traders from public utility or from an energy trading shop. And to find groups that we can partner with to do it in, in, in kind of a institutional long-term approach is, has…”
None of Chalkstream's most successful investments were consensus committee bets
“If I go back and think about all of our greatest hits, you know, I don't think there was one that was a consensus, like, yeah, that feels good around the board kind of investment. It was always like, there was always some twists, some difficulty”
Chalkstream holds a 4x notional short CDS position against tail risks
“Japanese equities down 40%, China hard landing, the world ends, like we're levered about four times short, notional short on CDS.”
TOPIX fell 44% in 2008 while Japanese net-cash activists lost 16%
“You know, Japan Topix is down 44%. You know, on average, these guys were down 16, 17%.”
Japan, Korea, and power trading account for 40% of Chalkstream's risk
“If you look at Japan, Korea, and increasingly power as a percentage of our risk in our portfolio, that's probably 40% of our risk.”
Chalkstream holds intentional direct equity beta exposure in Japan and Korea
“We do have some beta portfolio. We have it in Japan. We have it in Korea and things like that. And so like, I definitely have indirect beta and I have some direct beta bets, but the direct beta bets in our portfolio are very, very intentional.”