A Challenge to the Biggest Idea in Behavioral Finance

A Challenge to the Biggest Idea in Behavioral Finance

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Two professors make an interesting argument, but the theory of loss aversion isn’t dead yet.

By Barry Ritholtz

9 August 2018

 That sure hurt.  Photographer: Thierry Esch/Paris Match Archive/Getty Images

That sure hurt. Photographer: Thierry Esch/Paris Match Archive/Getty Images

A recent paper summarized in Scientific American raises an intriguing question: Is one of the founding theories of behavioral finance known as loss aversion -- the idea that people place more weight on avoiding losses than gains -- correct?

In the magazine, one of the study's authors, David Gal of the University of Illinois - Chicago, writes:

Why has such profound importance been attributed to loss aversion? Largely, it is because it is thought to reflect a fundamental truth about human beings—that we are more motivated by our fears than by our aspirations. This conclusion has implications for almost every aspect of how we live our lives, especially for finance and economics.

But Gal doesn’t see it that way. He writes that “loss aversion is essentially a fallacy.” He suggests that cognitive bias via loss avoidance doesn't exist, and messages framed in terms of losses are no more persuasive than those framed in terms of gains. 

Since this is an extraordinary claim, it requires extraordinary evidence. I don't believe that standard has been met and that the authors failed to make a case that convincingly rebuts the accumulated research.

Let's look at some of the hypotheticals Gal cites: “People do not rate the pain of losing $10 to be more intense than the pleasure of gaining $10.” That is not what most of the studies on the subject have found to be case; nor does it square with my personal experiences in dealing with any investor who has suffered losses.

He further writes: “People do not report their favorite sports team losing a game will be more impactful than their favorite sports team winning a game.” Again, numerous studies have found that despite the pleasures associated with being a sports fan, the opposite is true.

And one more: "And people are not particularly likely to sell a stock they believe has even odds of going up or down in price (in fact, in one study I performed, over 80 percent of participants said they would hold on to it).” Even if that is true (and I do not believe it is), the endowment effect easily explains why we place greater financial value on that which we already possess.

My pop psychology thesis on this is based on the asymmetrical impact of losses and gains. From an evolutionary perspective, the biological penalties for losses are existential threats to an individual’s or a specie’s survival; the upside of gains are modest -- you live to hunt (or avoid being hunted) another day.

In the modern human world, a loss can feel permanent. You exchanged your finite time for some money (this is otherwise known as employment). Or you risked capital and lost it. That money is gone forever. But get lucky in the markets or a casino and it is ephemeral “house money,” easy to spend thoughtlessly.

When Richard Thaler, Nobel laureate in 2017, was asked about the $1.1 million award that came along with the Prize in Economic Sciences, he cheekily said “I will try to spend it as irrationally as possible.” Thaler’s bon mots are a subtle admission of how humans behave in the real world. That’s what he was awarded the prize for in the first place.

No matter, the paper drew a good deal of attention from those like Drew Dickson, chief investment officer and managing partner at Albert Bridge Capital. In a pointed tweetstorm, he succinctly summed up their position, challenged their thesis, while noting that they perhaps have identified “other motivations for well-known biases.” But he too reaches the conclusion that loss aversion is alive and well.

Where I suspect the authors went astray was in the conflation of various cognitive failures, biases and heuristics with loss aversion. Consider for a moment a Las Vegas casino. If people were truly loss averse, the counterargument might suggest that casinos shouldn't exist. But they not only survive, but thrive. This is due to other powerful cognitive errors: 1) people tend not to understand how the odds are stacked against them and in the house’s favor; 2) others understand the probabilities, but irrationally believe they are an above-average gambler; 3) others simply gamble for its entertainment value and are willing to accept the inevitable losses.

The mere fact that gain-seeking behavior exists hardly eliminates loss aversion as a phenomena.

What is most fascinating to me about the premise that Gal and co-author Derek Rucker of Northwestern University's Kellogg School of Management have pushed forward is around the meta-concept that challenging the status quo is an uphill battle. They are on to something here, though surely they recognize that Daniel Kahneman and Amos Tversky’s famous theory was itself not accepted for a long time. Kahneman and Tversky’s ground-breaking 1979 paper was an assault on the status quo at the time, and it took decades before their thesis was assimilated into psychology and economics.

But this does bring up an intriguing concept: As any counterintuitive idea slowly becomes mainstream, it too is eventually challenged as the status quo. Perhaps this is what physicist Max Planck meant what he stated that “science advances one funeral at a time.”

For many good reasons, loss aversion has become accepted wisdom on how people make decisions under conditions of uncertainty. I suspect it will be a long time before that explanation is overthrown.




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Class, Behave!

When Richard Thaler brought the debate about behavioral economics to Chicago Booth, he entered a classroom that extends to Stockholm and beyond.

In 2017, Chicago Booth professor Richard Thaler won the Nobel Prize in Economic Sciences. Thaler’s students describe him as “a luminary,” “a guru”—someone who changed their lives and set their careers on a trajectory to success.

So it might be surprising to hear that those superlatives contrast amusingly with the way Thaler’s close friends and admirers—and even Thaler himself—have described the newly minted Nobel laureate:

“We didn’t expect much of him,” said Sherwin Rosen, AM ’62, PhD ’66 (Economics), his thesis advisor at the University of Rochester. 

Daniel Kahneman, the 2002 Nobel laureate in Economic Sciences and one of Thaler’s closest friends, described Thaler as “lazy.”

Early on in Thaler’s career, his fellow Booth professor and future golf buddy Eugene Famaonce quipped, “His work is interesting, but there’s nothing there.”

Thaler’s own self-assessment is hardly more glowing. He considers himself “at best, an average economist.” How did an “average economist” change the field of economics, gain a worldwide reputation, and influence public and corporate policies for millions of people—and win the Nobel Prize?

It turns out that Thaler’s ability to spot anomalies, tell stories, and share credit for his successes have made him not only a great researcher, but also a great teacher.

“One of the nicest things that has happened since the Nobel,” Thaler said, “is hearing from lots of students that I hadn’t stayed in touch with saying they still think about that class and they remember this story or that story many years later. When I first figured out the power of storytelling, I would tell my students that my plan was not to maximize what they knew at the end of the course but what they would remember five years later. Now I know that some of them remember it 40 years later.”

Looking for His Cello

Thaler decided to become an academic, he says, because he is “a really lousy subordinate.” Academia seemed the only career where no one could tell him what to do. He had no grand plan; he just wanted to get tenure. Two years into his career as an economics professor—teaching the MBA version of Econ 101 at the University of Rochester and frankly not having much fun—he came upon the work of Daniel Kahneman and the late Amos Tversky. It opened his eyes to the reason behind so much of what he observed. Economics, he was finding, was “a bit boring.” On the other hand, people watching was interesting. He suspected that the gap between psychology—what the two professors were studying—and economics was largely unexplored, with lots of low-hanging fruit. 

In a 2003 convocation speech at the University of Chicago, Thaler likened the moment to a story about world-renowned cellist Yo-Yo Ma. Ma began his musical studies as a toddler on the violin, on which he describes himself as only average, but when someone handed him a cello, he found his calling. In spotting the connection between psychology and economics, Thaler said he “found his cello.”

In 1977, he went to Stanford to spend a year with his idols, Kahneman and Tversky, who were there visiting from Israel. They helped him learn psychology, he helped them learn economics, and they became both friends and collaborators. At the end of that year, Thaler jumped to the SC Johnson College of Business at Cornell University. He created an elective course called Behavioral Decisions Theory. It was “a little off the wall,” with much material possibly “borrowed” from a class he had taken from Tversky, he recalled. The class was not very well attended. 

“I had to figure out how to increase enrollment in the class,” he said. “I changed the name to Managerial Decision Making and enrollment doubled.” Thaler asked his students how many chose the course based on the name. “No one said yes,” he remembered. “I said, ‘Half of you are wrong.’” 

Thaler, the professor, had arrived.

I want students to have to think about it, not just memorize what was said.
— Richard Thaler

The Power of Storytelling

Memories of Thaler’s teaching style have one common thread for all of his former students: laughter. They can’t describe a Thaler class without a smile. “He meanders up to the podium,” said Linnea Gandhi, MBA ’14, who has known Thaler as a student, a teaching assistant, and now co-professor as adjunct assistant professor of behavioral science at Booth. “Then he tells stories about foibles and fumbles, not just in companies but in his own life.” In most students’ recollections, this is done at a slight lean, against the podium, against the transparency machine in the old days, against whatever’s handy.

Thaler’s stories have become part of his mythology. A select few made it into his Nobel lecture. The story of the bowl of cashews, of the blizzard that kept him and a colleague from driving 75 miles to a basketball game, of his former professor’s wine collection: seemingly random, always entertaining, these slice-of-life stories led to research projects, which led to his theories on self-control, on mental accounting, and on the endowment effect, loss aversion, and status quo bias—all of that in the first few years of his career.

His teaching style is so avuncular and accessible, his body language so relaxed, that students often underestimate the content. They may sign up because of his reputation, or because of a shared love of sports, or—of late—because he’s recently been in an actual first-run movie with actual movie stars (The Big Short, winner of the Academy Award for Best Adapted Screenplay in 2016). On its face, the substance of his syllabus may seem easy. When students try to apply the theories, Gandhi said, “that’s when they realize how difficult it is.”

Thaler tells stories “because that’s what people remember.” His class includes what he calls “the little magic show,” part of which relies “on students having forgotten things they learned in statistics class” during a previous semester. “Nobody remembers some formula,” he said. “But they remember stories.”

Thaler’s storytelling style in the classroom has made an indelible impact on his students. If you were to ask the thousands of Booth graduates who have taken his courses over the decades which Booth course they remember the most, “a tremendous number would cite his class,” said Raife Giovinazzo, MBA ’03, PhD ’08. “He built it to be memorable—and therefore useful.”

Sports stories permeate Thaler’s classes. He has even managed to write an academic paper about the NFL draft. He is a sports fan, a golfer, and agnostic in his preference for football over baseball over basketball. As a behavioral economist, however, “my justification is that we get to watch the teams’ decisions in a way that we don’t in most of business,” he said. When Amazon was deciding whether to buy Whole Foods, for instance, the general public was not privy to the conversation. “We see that they did it and we see their reasons, but we don’t see the five things they thought about and didn’t do,” Thaler said. “If a firm is hiring a new CEO, we have no idea who they interviewed, how they made the decision.”

On the other hand, sports fans can see the decision-making process in play every second of a sporting event. “When a basketball player takes a two-point versus a three-point shot, we see that decision play out,” Thaler said. “There’s now data on every action by every player in every game.” There is no similar dataset on decision-making within firms.

No Right Answers

As a young professor teaching more basic economics courses, and giving exams that were more about data, Thaler found that his students disliked being graded on a curve. They balked at scoring only 65 when the average score was 72—it mattered little that their actual score would earn them a B.

Thaler didn’t want to make the exams any easier. But as a young professor with an eye on tenure, he wanted to keep his job. He kept the exam just as hard, with one exception: the number of available points rose to 137. When Thaler graded the test, the average score rose as well, to 96. Students might still get a B, but they felt better. Some of them were positively ecstatic that they scored “higher than 100.” 

Their joy, of course, makes no rational sense. The experience added to Thaler’s mounting list of “supposedly irrelevant factors,” or SIFs. SIFs form the basis of much of his thinking on why people behave in irrational ways, and why their irrationality is predictable. 

He once ran into a student who was studying for the final exam in his class and said he was busy outlining the articles they had read, a thought that appalled Thaler. “I want them to have to think about it,” he said, “not just memorize what was said.” So he started using a new type of exam. He would ask students to submit potential exam questions and then would circulate about 75 of those questions, saying the exam would be composed of (slightly edited) versions of these. The rule in generating questions was that they could not have a simple “correct answer” but rather force the students to ponder the material they had learned and then apply it to some novel situation.

 “It’s not the most precise way of measuring how much they’ve learned,” he said. “But it’s the best way I have found to maximize what they learn when studying for the exam.” 

“It’s different than a traditional exam,” said Drew Dickson, MBA ’99.

“On most exams, you go point to point, show your work, and here’s your grade. Thaler’s tests probe you, and show what paths you might go down to solve the problem. There might be more than one answer. You’re not done with the test when you finish the test. You have to apply your ability to think laterally. You learn how to question yourself.”

One of Thaler’s former teaching assistants, Dean Karlan, MBA ’97, MPP ’97, expressed relief that his TA stint predated the latest, nontraditional iteration of Thaler exams. “It sounds like a nightmare to grade,” said Karlan, now professor of economics and finance at Northwestern University and founder of Innovations for Poverty Action (IPA).

Thaler once compiled a list of the top 10 reasons not to take his class. Imprecise and subjective grading was on the list. “If you want exams with right or wrong answers,” he said, “take accounting.”

The people who helped him—he gives it back. . . . It makes for lifelong fans.
— Linnea Gandhi

Laziness as a Work Habit

Thaler’s nonchalance in the classroom downplays his brilliance and showcases his supposed laziness, a trait that he attributes to himself. There is no way he could have achieved everything he has if it were true, however. In fact, he “works his butt off,” according to Gandhi, who helped Thaler prepare both the final draft of Misbehaving: The Making of Behavioral Economics—his most recent book—and his Nobel lecture. With a caveat, Gandhi added: Thaler works only on things that interest Thaler. “When he gets an idea and begins to think about it,” she said, “it works its way into every conversation, every class, every speech.”

Cade Massey, MBA ’03, PhD ’03, worked with Thaler on research into the NFL draft over the course of 14 years. They began in 1999, published “The Loser’s Curse: Decision Making and Market Efficiency in the National Football League Draft” in 2005, and updated their findings in 2012. Now a practice professor in the operations, information, and decisions department at the Wharton School, Massey is working with an NFL team on what has come to be known as people analytics.

“He’s not lazy,” Massey said. “He just wants to work on things that amuse him. Then he’s not lazy at all. He doesn’t like to do things he doesn’t want to do.”

Nudge: Improving Decisions about Health, Wealth, and Happiness, Thaler’s best-known book and a best seller, originally appeared in 2008. One chapter, about the Swedish social security system, evolved from a 2004 paper he wrote with a Swedish doctoral candidate, Henrik Cronqvist, PhD ’05. When a scandal involving the system arose in 2017, Thaler contacted Cronqvist, now chair of the department of finance at the University of Miami. “He said, ‘Let’s put the band back together,’” Cronqvist recalled. Last December, while in Stockholm to accept his Nobel, Thaler addressed the Swedish Parliament in anticipation of a paper published the following month called “When Nudges Are Forever: Inertia in the Swedish Premium Pension Plan.” 

Given the size of the dataset—every pension choice made by every Swede since the system’s inception—the idea is likely to continue kicking around in Thaler’s head, cropping up in every class, every conversation, every speech. As in the work he did with Massey on the NFL draft, he will stick with something for years until he resolves it in his own mind. The man leaning casually against the lectern is his own toughest critic and does not grade himself on any curve. 

“He’s amazingly productive,” said Karlan of Thaler’s work habits. “But with a strong preference for hanging out.” 

The Chicago Approach

It is hard to imagine two more different individuals, two more different teachers, or two more different economists than Thaler, Charles R. Walgreen Distinguished Service Professor of Behavioral Science and Economics, and Eugene Fama, Robert R. McCormick Distinguished Service Professor of Finance. Thaler’s theories—once referred to as wackonomics—took decades to be accepted by the economics establishment. Even post-Nobel, there is still some skepticism from the quant side of the house. Fama, the father of much of the efficient-market hypothesis, is known for exactitude, and for not suffering fools well, if at all. Professor Fama does not lean nonchalantly on the podium and tell stories. On his exams, there is most definitely a right answer and a wrong one. 

And while it was Fama who said that there wasn’t much to Thaler’s work, unlike his colleague Merton Miller, Fama did not oppose Thaler’s coming to Chicago. When Thaler did arrive in 1995, Miller was asked why he had not blocked the appointment. He replied: “Each generation has to make its own mistakes.” Quite a welcome!

The seemingly unlikely relationship between Thaler and Fama—good friends and golf partners, and yet diametrically opposed in so many ways—encapsulates the appeal of Booth to so many students. It’s not about the disagreement; it’s about the ideas and the ability to debate those ideas without rancor or ill regard. 

“Miller and Fama gave me the framework I start with to this day,” said Dickson, founder and CIO of Albert Bridge Capital in London. “But Dick Thaler gave me the red pill. He’s been showing me how deep the rabbit hole is ever since.”

Dickson mentions how Thaler likens the debate between behavioral economists and efficient-market economists to a face-off between Homer Simpson and Mr. Spock from Star Trek. “When you look at markets, on the other side of the table from Mr. Spock sits Homer Simpson, a human being. In my business, any Spock can see when a stock is cheap or expensive. But what can I find that proves that the market is acting like Homer? The value-added is the application of these tenets of behavioral finance.” 

When Giovinazzo arranged his PhD committee, he sought out the best group, regardless of any supposed differences. Fama and Thaler sat on his committee. “Both believe in looking at the facts,” said Giovinazzo, who passed up a career as a professor and has become a partner at Fuller & Thaler Asset Management in San Mateo, California. “There wasn’t even any controversy on how they approached the committee. They might disagree on how far you can extend the facts, but if the analysis is done in a sensible way, they will be in sync on it.”

Thaler provokes debate with and among his students, both in class and out. When Executive MBA students take his class at the same time they’re taking Microeconomics, “he loves to get them arguing the micro side of things and then help them see what micro is missing,” Gandhi said. “Booth does a better job of training for ideas than any other business school,” added Giovinazzo. Thaler’s “little magic show” is a prime example.

As part of that show, Thaler presents a bunch of questions people typically get wrong, predicts the incorrect answers most students will give, and then reveals the right answer. “They’re always different,” Thaler said, “and my predictions of their answers are almost always right. The point is to show them they are not as smart as they think they are. I can predict the mistakes they are going to make.” Far from any sort of professorial one-upmanship, his magic show starts an inquiry that forms the basis of behavioral economics and of his unique teaching style. 

When Thaler first came to Chicago, he made Fama’s course a prerequisite for his PhD course in Behavioral Finance. “You have to know the standard theory before you can criticize it,” Thaler said. “You can argue the empirical validity of the efficient-market hypothesis, but there would have been no behavioral finance without it. It’s the benchmark to which we were comparing things.”

The Chicago Approach, both men agree, is to have fierce arguments in workshops but never make them personal, to debate principles and ideas rather than personalities and egos. It is not just intellectually stimulating and distinctly different from any other business school; it shows a generosity of intellect uncommon in any workplace. 

“He’s fearless,” Karlan said. “I came to this after he’d already cut against the grain. That’s what got him here. He was like a dog with a bone and wouldn’t let it go until others said, ‘Maybe he’s onto something.’”

As attendees to Thaler’s Nobel lecture (viewable on NobelPrize.org) found their seats in a large auditorium, they were shown a slideshow that was running until the lecture began. Fifty slides recognized more than 100 people who have helped him in his work. The slides were his idea and he was very insistent on their inclusion, according to Gandhi. 

“He did not climb the ladder,” Gandhi said. “He didn’t step on people. He followed stuff that was odd and weird, and he didn’t care what others thought. The people who helped him—he gives it back. It is the coolest, most surprising side to him. And it makes for lifelong fans.”

—By Rebecca Rolfes


Albert Bridge Capital's Dickson Included in The Hedge Fund Journal Tomorrow's Titans 2016

Dickson, formerly of Fidelity and Och-Ziff, spun his Alpha Europe strategy off the Perella Weinberg Partners (PWP) platform, launching the strategy independently in the spring of 2016 with assets under management of $125 million.

Former PWP colleagues have re-joined him, including Doriana Pavlicu, Charles Hwang, and Jeremie Dadoun, filling out a team of nine backed by a large US university endowment. Dickson’s formative years working and studying under behavioural economist Richard Thaler at the University of Chicago, underpin the behavioural finance elements of the investment process.

The Albert Bridge team follows a bottom-up, deep-dive fundamental equity strategy with the goal of generating differentiated, idiosyncratic returns, capitalising on superior, objective analysis; while taking advantage of biases of the consensus investor. He constructs the portfolio in a reasonably concentrated manner, with the top ten positions representing 65% of assets under management since the strategy’s inception in April of 2008.

Before spinning off the PWP platform in December of 2014, cumulative net returns in the Alpha Europe Long Only Fund had reached 135.9%, representing annual returns of 13.5%.


Albert Bridge Hires Former BAML’s Kenny for Marketing

Andrew Dickson’s Albert Bridge Capital, which started trading in London this year, has hired Mairead Kenny, Bank of America Merrill Lynch’s head of capital introductions, to lead fundraising.

Kenny has joined as director of marketing and investor relations, the money manager said in a June 7 statement. Kenny led the U.S bank’s unit helping European hedge funds raise money for more than four years.

Dickson, former money manager with Perella Weinberg Partners, started trading the AB Alpha Europe Long Only Fund in April.  The fund had support from a U.S. university endowment and raised $150 million.  It has a capacity of $750million, Dickson said in April.

Kenny “will bring enhanced strategic leadership to the non-investment side of Albert Bridge and make a significant contribution to the service and transparency we can provide to our investors and to the growth of our business”, Dickson said.  The fund previously hired Stuart Bohart, who has held senior positions at Fortress Investment Group and Morgan Stanley Investment Management, as a non-executive partner and member of the firm’s advisory board. 

Albert Bridge hires BAML cap intro head

Mairead Kenny joins as director of marketing and investor relations

London-based hedge fund Albert Bridge has hired Bank of America Merrill Lynch head of cap intro Mairead Kenny as director of marketing and investor relations.  Kenny had been head of European capital introductions with Baml for four years and her hire follows the appointment of former Fortress Investment Group co-CIO Stuart Bohart to Albert Bridge’s advisory board. 

Albert Bridge, a Perella Weinberg spinout, launched in April and runs the Alpha Europe Long Only Fund, which focuses on European developed-market equities.  The Cayman-domiciled fund initially launched with $100m and the firm is looking to close at $750m.

“I am delighted that someone of Mairead’s calibre and energy has joined us in this new role,” said the firm’s founder Drew Dickson.  “She will bring enhanced strategic leadership to the non‐investment side of Albert Bridge and make a significant contribution to the service and transparency we can provide to our investors, and to the growth of our business.”

Dickson left his role as partner and portfolio manager with $8.6bn Perella in January and has previously held roles at Fidelity and Och-Ziff Capital Management having also founded his own hedge fund firm Dickson Capital, which he ran between 2008 and 2012. Dickson Capital was merged into a Perella fund in 2012 to form the Alpha Europe Fund, which closed down in 2014 after failing to reach the requisite AuM.

The firm recruited former Perella director Doriana Pavlicu, who was also part of Dickson Capital, as head of operations as well as ex-Perella analyst Charles Hwang.


Ex-Fortress and Morgan Stanley heavyweight joins hedge fund startup

Ex-Fortress and Morgan Stanley heavyweight joins hedge fund startup


A former president at alternatives giant Fortress Investment Group and one-time head of Morgan Stanley's investment arm, has taken up an advisory role at a London-based hedge fund.

Stuart Bohart has joined Albert Bridge Capital as an advisor, according to the firm's website.

Bohart has held a number of roles in the investment industry, most recently serving as President of liquid markets and co-chief Investment officer of Partners Funds at Fortress, until his departure in the Summer of 2015.

Fortress is one of the largest alternative investment managers in the world, managing about $70.6 billion of assets for institutional and private investors across a range of strategies.

Prior to Fortress, Bohart was co-head of Morgan Stanley Investment Management, a job that gave him oversight of more than $400 billion in retail and institutional money, according to his profile on Albert Bridge's website.

Albert Bridge was set up by Andrew Dickson, a former partner at Perella Weinberg Partners - the firm received authorisation from the UK's Financial Conduct Authority in March 2015.

It employs a team of seven, including Dickson, as well as two advisors: Bohart and David Grant, a former analyst at Fidelity Investments.

According to a Reuters report in December, which cited people familiar with the matter, Albert Bridge launched with a $100 million fund that could eventually close at $750 million.

Bohart could not be reached for comment.

Ex-Perella Weinberg Manager Raises $150M for Startup

Andrew Dickson, a former money manager with Perella Weinberg Partners in London, has raised US$150 million for his new firm, Albert Bridge Capital.

His AB Alpha Europe Long Only Fund will focus on European developed-market equities and have a capacity of $750 million, Dickson said in an interview on Wednesday. He has backing from a U.S. university endowment fund, he said, declining to identify the institution.

Dickson’s previous firm, Dickson Capital Management, was acquired by Perella Weinberg in 2012. Since then he has run the New York-based firm's Alpha Europe unit. He previously worked for Och‐Ziff Capital Management Group.

Doriana Pavlicu, who previously worked at Perella Weinberg and Dickson Capital, is Albert Bridge's chief operating officer. The firm is currently hiring a head of investor relations. Albert Bridge employs seven people including Dickson.

The launch comes amid a slowdown in new hedge funds globally. Shutdowns outnumbered start-ups last year for the first time since 2009, according to data firm Hedge Fund Research, as the global industry contracted.

Former Perella Weinberg Partners Exec Dickson Launching New Hedge Fund


Andrew Dickson, formerly a partner with Perella Weinberg Partners Capital Management, is prepping a new London-based hedge fund firm.

The new company, named Albert Bridge Capital, will launch in the first quarter of next year with an initial equity-focused fund of around $100 million, according to a Reuters article that cited six unidentified sources familiar with the matter. Albert Bridge has reportedly submitted the requisite paperwork to the U.K.’s FCA and has an eventual AUM target of $750 million.

The initial fund will focus primarily on 15-25 equity positions. Eventually, Albert Bridge plans to open a second fund that will be more of a long/short vehicle, according to Reuters. 

Dickson joined $8.5 billion alternative asset manager Perella Weinberg in 2004 after jobs at Fidelity and Och-Ziff Capital Management. He also founded equity hedge fund Dickson Capital Management, which eventually meshed with Perella Weinberg before it was shut down last year.

Joining him at the new venture is former Perella director Doriana Pavlicu, who will be head of operations at Albert Bridge, and ex-Perella analyst Charles Hwang.

Ex-Perella Weinberg partner launches Albert Bridge Capital

Andrew Dickson set to launch first long-only fund in first quarter of 2016.

Ex-Perella Weinberg Partners Capital Management partner Andrew Dickson is launching an equities hedge fund business in the first quarter of 2016 with an initial $100m, HFMWeek understands Albert Bridge Capital’s Alpha Europe Long Only fund will focus on European equities, holding between 15 and 25 stocks, and is targeting a $750m close. The firm is also considering the launch of a long/short fund.

The firm is understood to be expecting significant flows into the Cayman-domiciled fund from endowments and institutions.

Dickson left his role as partner and portfolio manager with $8.6bn Perella in January and has previously held roles at Fidelity and Och-Ziff Capital Management having also founded his own hedge fund firm Dickson Capital, which he ran between 2008 and 2012.

Dickson Capital was merged into a Perella fund in 2012 to form the Alpha Europe Fund, which closed down in 2014 after failing to reach the requisite AuM.

London-based Albert Bridge is awaiting FCA authorisation.

Dickson has recruited former Perella director Doriana Pavlicu, who was also part of Dickson Capital, as head of operations as well as ex-Perella analyst Charles Hwang.

In July Perella Weinberg money manager Daniel Arbess left the firm to focus on investing in private markets having managed Perella’s Xerion hedge funds, which closed in late 2014 after the main fund fell -7% in the first 10 months of the year.

Barrons - Focus on Funds, AM Funds Roundup

Third Avenue Management’s CEO David Barse has left the firm, according to anonymous sources. Gregory Zuckerman, Rob Copeland, Matt Wirz & Serena Ng, The Wall Street Journal.

Why ETF flows aren’t a good indicator of market sentiment. Chris Dietrich, Barron’s.

Third Point’s Daniel Loeb didn’t take the weekend off from putting pressure on Dow Chemical (DOW) and its proposed merger with DuPont (DD). Michael J. de la Merced, The New York Times.

Former Perella Weinberg Partners Capital Management partner Andrew Dickson is planning to launch what could be one of Europe’s biggest new hedge funds of the year. Maiya Keidan and Simon Jessop, Reuters.

The fall Citic Securities—once called the Goldman Sachs of China—may have started with a probe into shorting instruments it was marketing to hedge funds.  Bloomberg News.

Natural gas prices tumbled to their lowest levels since 2012 as unseasonably warm weather in much of the nation sent demand for heating oil to a seven-year low. Myra Saefong, MarketWatch.

A wave of investor withdrawals led Stone Lion Capital to suspend redemptions in its credit hedge funds. Rob Copeland, The Wall Street Journal.

Ex-Perella Weinberg partner to launch equity hedge fund

Former Perella Weinberg Partners Capital Management partner Andrew Dickson is preparing to launch an equities hedge fund firm called Albert Bridge Capital, six sources familiar with the matter said.

The firm is set to open an initial fund with $100 million in the first quarter of 2016, one source said, while a second added the size could be in the "low hundreds of millions". A third source said the fund would close at $750 million.

Reaching $100 million would put the fund among the biggest regional launches. Just 14 Europe-based hedge funds kicked off with that much in 2015, data from industry tracker Preqin showed.

The need to reach that figure has become more acute in recent years as a result of rising regulatory costs. Many funds also want to reach a size that makes them more attractive to institutional investors.

Dickson left his role as partner and portfolio manager at $8.6 billion investment manager Perella in January.

As well as previous stints at fund firm Fidelity and U.S. hedge fund Och-Ziff Capital Management, Dickson had also co-founded equity hedge fund Dickson Capital.

That firm's fund was eventually merged into Perella and renamed the Alpha Europe Fund, before it was shut at the end of 2014 after failing to reach "critical mass", despite positive performance, a fourth source, close to Perella, said.

The third source said Albert Bridge's first fund would buy just 15-25 stocks and be the firm's main focus for the next few years. A second fund that is able to bet on falling share prices may also be launched in the future, he added.

The firm had submitted its application for authorisation to the British regulator, but was not yet marketing to potential investors. However, the third source said he expected significant interest from U.S. endowments and institutions.

Joining Dickson in the start-up is ex-Perella director Doriana Pavlicu, who also worked alongside Dickson as head of operations at Dickson Capital Management, the role she will take at Albert Bridge, and ex-Perella analyst Charles Hwang.