'The biggest enemies to success are complacency and hubris'

Dr. Ranjan Bhaduri on the link between innovation and hedge fund research

'The biggest enemies to success are complacency and hubris'

Dr. Ranjan Bhaduri, the driving force behind Bodhi Research Group, has found insights in applied hedge funds research, particularly in factorization and portfolio management. Speaking to BPM, Dr. Bhaduri says that Bodhi’s success in hedge fund research can be distilled into a few key components.

“Innovation in hedge fund research is multifaceted,” he explains. “One key area is portfolio construction. We merge qualitative insights with quantitative rigor to craft a robust portfolio capable of enduring various market conditions.”

This meticulous approach ensures that portfolios are neither over-diversified nor under-diversified, maintaining an optimal balance.

“Too often, portfolios suffer from being over-diversified with too many managers,” Dr.  Bhaduri adds, “which leads to higher fees and complexity, or they are under-diversified, missing out on crucial return drivers and prudent risk management.”

Dr. Bhaduri’s methodology emphasizes the importance of balancing these elements to create a resilient portfolio.

“In reality, there may be some phase locking - meaning that the correlations break down when you need it the most,” he explains. “One component of innovation is on the portfolio construction – the second component is on structuring, utilizing managed account platforms, invoking innovative fee methodologies that align the interests of both the institutional investor or single family office.”

Identifying opportunities among both emerging and mid-sized managers is another critical component of Bodhi Research Group’s strategy.

“Emerging and mid-sized managers are often neglected,” adds Dr. Bhaduri. “The very largest managers are often getting a lot of the allocations and some of those definitely deserve it. In other cases, it may be some inertia or it may be a potential career risk. There is a lost opportunity that we’re trying to capitalize on in order to get that first mover advantage.”

By targeting these often-neglected segments, Bodhi Research Group positions its clients to discover unique and lucrative investment opportunities.

Dr. Bhaduri also shared insights into the clientele Bodhi Research Group serves, emphasizing their global reach and advisory approach.

“We don’t trade or sell investment products, handle client money, or do commission-based work. This makes us unconflicted,” he says. “We're doing research, which is advisory and consulting, and we're doing education on such advisory and consulting. Our clients are largely allocators. We've had 12 different Canadian pension clients, we’ve had clients from five different continents – we’re global. The kinds of projects we do are very different and truly customized.”

Due diligence, especially in a global market, is a cornerstone of Bodhi Research Group’s methodology. Dr. Bhaduri, who has over 22 years of experience in this field, has his own approach to it. For him, manager research and due diligence involve assessing four critical aspects: integrity and ethics, opportunities for profit, risk management, and business management.

“I would say that in over 20 years of conducting due diligence, the biggest enemies to success are complacency and hubris. It’s a matter of these organizations having that research culture, having the culture for continuous improvement, and trying to ascertain how they're improving and what they're improving.”

And, with Dr. Bhaduri’s global experience, including special delegations in Beijing and Taipei, he has a uniquely broad perspective on financial regulation.

“There’s a collision of worlds happening, with private equity and hedge fund investments becoming more accessible to retail investors through various vehicles,” he says. “Increased documentation and scrutiny are generally positive, providing necessary oversight, but they also add burdens for emerging hedge funds.”