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How to Generate 44% Return on Equity The model illustrated is based on a small hedge fund business, approximately 200 clients investing an average of just £250K each or an asset base of some £5o Million under management.
I used a number of quick assumptions about 16 in fact highlighted in Bold Blue on the model, such as a moderate leverage ratio of just 10, 120% RWAs and a Tier 1 Capital Ratio of 8% per Basel 1. But you can just click on the model to see the assumptions more clearly.
I produced this analysis from my head in about 25 minutes so clearly it could be refined a lot, but it should still illustrate the point, which is:
It generates a Return on Equity of over 44% utilising moderate to low yielding assets, using a very low trading churn of just 15 and a moderate asset utilisation of 60%. A family office or small hedge fund with 200 clients investing approximately £250K each could easily replicate this strategy using the AliCatRisk5 trading system, as demonstrated in earlier videos. If they knew how to earn approximately 60 basis points per average trade, which, based on the simulations and my personal trading record, is realistically achievable.
The chart illustrates clearly the benefits of leverage, but this must be tempered with the fact that with leverage comes risk. I would opt for the mid range of between 6 to 9 times equity in this particular scenario to be safe. If you are interested in learning about these strategies please purchase and download the E-Book.
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