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.