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Diversification Related Scholarly Compositions
See also:
Diversification Related News,
Diversification Related Books,
or
Diversification Home Page.
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Asset-Based Hedge-Fund Styles and
Portfolio Diversification
by William Fung & David A. Hsieh
October, 2001
Abstract
Asset-based style factors link returns of hedge-fund strategies
to observed market prices. They provide explicit and unambiguous
descriptions of hedge-fund strategies that tells us both the
nature as well as the quantity of risk. Asset-based style
factors are key inputs to portfolio construction and for
benchmarking hedge-fund performance on a risk-adjusted basis...
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Diversification Benefits and
Persistence of U.S.-Based Global Bond Funds
by Sirapat Polwitoon & Oranee Tawatnuntachai
Sigmund Weis School of Business & School of Business
Administration - Penn State
May, 2005
Abstract
This paper examines diversification benefits and performance
persistence of 188 U.S.-based global bond funds that survived
and were defunct during the period of 1993 to 2004. Consistent
with managed fund literature, global funds underperform
broad-based benchmark indexes; however, the underperformance is
less than the funds’ expense ratio. The results using both
simple and time-varying frameworks suggest that global funds
provide higher total return and comparable risk-adjusted return
to domestic bond funds...
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Diversification and Persistence
in Hedge Funds
by Craig W. French, Damian B. Ko, & David Abuaf
Corbin Capital Partners, L.P.
October 31, 2005
Abstract
We examine the current fund of hedge funds universe, and find
that funds of hedge funds report holding between 1 and 200
underlying funds, and generally hold 10-30, with close to 20 on
average. We regress the performance of this universe on the
number of holdings and find that return is practically
orthogonal to the number of underlying hedge funds held.
However, when we regress risk-adjusted return measured by the ex
post Sharpe ratios of funds-of-hedge funds, we do find a
statistically significant positive relation over 5-year periods;
this seems consistent with our findings that diversification
reduces volatility...
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The Diversification Properties of
Hedge Fund Investments
by Eckhard Freimann
Imperial College, London
Abstract
This study analyses the trade off between manager specific and
systematic risk of portfolio of hedge funds. We compare the
properties of naively constructed portfolios with those of fund
of hedge funds, in order to assess the added value of the hedge
fund managers. The results suggest that the hedge fund investor
is confronted with the dilemma of having either a concentrated
portfolio with a high volatility but a low systematic risk or
holding a well diversified portfolio with a low volatility but a
high systematic risk...
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Diversification and Yield
Enhancement with Hedge Funds
by Gaurav S. Amin & Harry M. Kat
Schroder Hedge Funds, London & Cass Business School - City
University, London
October 7, 2002
Abstract
In this paper we study the diversification effects from
introducing hedge funds into a traditional portfolio of stocks
and bonds. We find that although the inclusion of hedge funds
may significantly improve a portfolio’s mean-variance
characteristics, it can also be expected to lead to
significantly lower skewness as well as higher kurtosis. This
means that the case for hedge funds is less straightforward than
often suggested and includes a definite trade-off between profit
and loss potential...
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Diversifying among Hedge Fund
Strategies: An Alternative Frontier
by Emily Perskie
Duke University
Spring 2003
Abstract
The goal of this study is to create optimal portfolios of hedge
funds. This paper discusses the different investment styles
within the hedge fund universe along with their specific risk,
return, and correlation characteristics. Markowitz’s portfolio
selection model is used to create an efficient frontier to
determine the best way for an investor to allocate capital among
hedge fund strategies...
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Evaluating Gains from
Diversifying into Hedge Funds Using Dynamic Investment
Strategies
by Bengt Pramborg & Niclas Hagelin
Stockholm University
2004
Abstract
In this study, we examine the returns and investment policies
for portfolios of stocks and bonds with and without hedge funds.
We apply the discrete-time dynamic investment model that allows
for all moments of the return distribution to affect the
analysis. This is of importance given that earlier studies have
documented that hedge fund returns tend to be non-normally
distributed...
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Hedge Funds: Approaches to
Diversification
by Amy Ballew, Meenu Gupta, Geoffrey Lasry, & Ariel Weinberger
Kellogg School of Management
June 17, 2002
Abstract
This paper has two goals: to determine if hedge funds are a
separate asset class and if so, if any of the correlations
between hedge fund strategies are low enough to enable fund of
fund managers to strategically diversify within the hedge fund
arena. Our findings indicate that hedge funds should be
considered a separate asset class; they do not have a
significant relationship with other asset classes and hedge
funds, as a group, react in similar ways to certain external
factors.
Further, our analysis shows that a fund of funds manager could
improve the Sharpe ratio of his or her fund by implementing our
systematic approach to fund of funds diversity; the simulation
reduced the volatilities (risk) without meaningful effect on the
returns...
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Hedge Funds Investing: A
Quantitative Look Inside the Black Box
by François-Serge Lhabitant
August 2001
Abstract
There is an increasing amount of evidence that shows
the benefits of considering hedge funds as an asset class at the
strategic asset allocation level. The investors’ greatest
challenge remains the identification of desirable investment
vehicles, since very little formal quantitative analysis of
hedge funds has been done in the past. In this paper, we suggest
an innovative approach to hedge fund investing, which is valid
at the individual fund level as well as at the aggregate
portfolio level (e.g. portfolio of hedge funds)...
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A Nonparametric Assessment of the
Diversification Benefits of Hedge Funds
by Muzaffer Emre Balta
Gothenburg University
January 8, 2003
Abstract
In this article, the return characteristics of hedge fund
indices over the period 1990 through 2001 are analyzed. Most of
the commonly used performance measures of hedge funds, such as
the Sharpe ratio and the Jensen alpha, assume an a priori
frequency distribution of returns, which, under certain
conditions, may result in erroneous inferences. Meanwhile, a
non-parametric method allows the data to determine the shape of
the functional form rather then imposing the parametric
straightjacket of rigid distributional assumptions...
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Back to Scholarly Compositions
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| HEDGE FUND RISK AND OTHER
DISCLOSURES |
Hedge funds, including fund of funds (“Hedge
Funds”), are unregistered private investment partnerships, funds or
pools that may invest and trade in many different markets,
strategies and instruments (including securities, non-securities and
derivatives) and are NOT subject to the same regulatory requirements
as mutual funds, including mutual fund requirements to provide
certain periodic and standardized pricing and valuation information
to investors. There are substantial risks in investing in Hedge
Funds. Persons interested in investing in Hedge Funds should
carefully note the following:
- Hedge Funds represent speculative investments and involve a
high degree of risk. An investor could lose all or a substantial
portion of his/her investment. Investors must have the financial
ability, sophistication/experience and willingness to bear the
risks of an investment in a Hedge Fund.
- An investment in a Hedge Fund should be discretionary capital
set aside strictly for speculative purposes.
- An investment in a Hedge Fund is not suitable or desirable for
all investors. Only qualified eligible investors may invest in
Hedge Funds.
- Hedge Fund offering documents are not reviewed or approved by
federal or state regulators
- Hedge Funds may be leveraged (including highly leveraged) and
a Hedge Fund’s performance may be volatile
- An investment in a Hedge Fund may be illiquid and there may be
significant restrictions on transferring interests in a Hedge
Fund. There is no secondary market for an investor’s investment in
a Hedge Fund and none is expected to develop.
- A Hedge Fund may have little or no operating history or
performance and may use hypothetical or pro forma performance
which may not reflect actual trading done by the manager or
advisor and should be reviewed carefully. Investors should not
place undue reliance on hypothetical or pro forma performance.
- A Hedge Fund’s manager or advisor has total trading authority
over the Hedge Fund.
- A Hedge Fund may use a single advisor or employ a single
strategy, which could mean a lack of diversification and higher
risk.
- A Hedge Fund (for example, a fund of funds) and its managers
or advisors may rely on the trading expertise and experience of
third-party managers or advisors, the identity of which may not be
disclosed to investors
- A Hedge Fund may involve a complex tax structure, which should
be reviewed carefully.
- A Hedge Fund may involve structures or strategies that may
cause delays in important tax information being sent to investors.
- A Hedge Fund may provide no transparency regarding its
underlying investments (including sub-funds in a fund of funds
structure) to investors. If this is the case, there will be no way
for an investor to monitor the specific investments made by the
Hedge Fund or, in a fund of funds structure, to know whether the
sub-fund investments are consistent with the Hedge Fund’s
investment strategy or risk levels.
- A Hedge Fund may execute a substantial portion of trades on
foreign exchanges or over-the-counter markets, which could mean
higher risk.
- A Hedge Fund’s fees and expenses-which may be substantial
regardless of any positive return- will offset the Hedge Fund’s
trading profits. In a fund of funds or similar structure, fees are
generally charged at the fund as well as the sub-fund levels;
therefore fees charged investors will be higher that those charged
if the investor invested directly in the sub-fund(s).
- Hedge Funds are not required to provide periodic pricing or
valuation information to investors.
- Hedge Funds and their managers/advisors may be subject to
various conflicts of interest.
The above general
summary is not a complete list of the risks and other important
disclosures involved in investing in Hedge Funds and, with respect
to any particular Hedge Fund, is subject to the more complete and
specific disclosures contained in such Hedge Fund’s respective
offering documents. Before making any investment, an investor should
thoroughly review a Hedge Fund’s offering documents with the
investor’s financial, legal and tax advisor to determine whether an
investment in the Hedge Fund is suitable for the investor in light
of the investor’s investment objectives, financial circumstances and
tax situation.
All performance information is believed
to be net of applicable fees unless otherwise specifically noted. No
representation is made that any fund will or is likely to achieve
its objectives or that any investor will or is likely to achieve
results comparable to those shown or will make any profit at all or
will be able to avoid incurring substantial losses. Past performance
is not necessarily indicative, and is no guarantee, of future
results.
The information on the Site is intended for
informational, educational and research purposes only. Nothing on
this Site is intended to be, nor should it be construed or used as,
financial, legal, tax or investment advice, be an opinion of the
appropriateness or suitability of an investment, or intended to be
an offer, or the solicitation of any offer, to buy or sell any
security or an endorsement or inducement to invest with any fund or
fund manager. No such offer or solicitation may be made prior to the
delivery of appropriate offering documents to qualified investors.
Before making any investment, you should thoroughly review the
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The information on this Site is as of the date(s) indicated,
is not a complete description of any fund, and is subject to the
more complete disclosures and terms and conditions contained in a
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returns, valuations, fund targets and strategies, has been supplied
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or implied, representation or guarantee is made as to the accuracy,
validity, timeliness, completeness or suitability of this
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Any indices and other financial benchmarks
shown are provided for illustrative purposes only, are unmanaged,
reflect reinvestment of income and dividends and do not reflect the
impact of advisory fees. Investors cannot invest directly in an
index. Comparisons to indexes have limitations because indexes have
volatility and other material characteristics that may differ from a
particular hedge fund. For example, a hedge fund may typically hold
substantially fewer securities than are contained in an index.
Indices also may contain securities or types of securities that are
not comparable to those traded by a hedge fund. Therefore, a hedge
fund’s performance may differ substantially from the performance of
an index. Because of these differences, indexes should not be relied
upon as an accurate measure of comparison.
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