An Insurance Hedge Fund

Some friends of mine asked me if I could create an insurance-centric hedge fund.  I said that it was unlikely because I’m not good at shorting.  They pressed me on it, because they knew if I had good longs, with my quantitative skills, I could create a credible short position that might hedge the longs.

Ugh.  I don’t want to do it, but maybe I could make this work.  I certainly could use the revenue.  So what would I focus on in such a fund?

  • Relative valuations
  • Management quality
  • Reserve releases/strengthening from prior year claims
  • Momentum — yeh, momentum.
  • Long-term underwriting profitability

My goal is to make money for average people, not the wealthy, but if that is the only way that my firm can survive, I will set up a hedge fund in the insurance space.  I love insurance; I know it intuitively, but I know that once I  begin to take big bets, I may fail badly.

If you know me well, you know that I only take prudent risks.  I’m not risk-averse, I like taking risks when the odds are in my favor.

So I am puzzled at this point.  I have done better in evaluating the broad markets than the narrow insurance markets, but if I have to be a narrow investor in order to survive, I can do that.

If you have advice for me here, I will receive it with thanks.