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Fund of Hedge Funds Related Scholarly Compositions
See also:
Fund of Hedge Funds
Related News,
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Books,
or
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The Alpha in Fund of Hedge Funds
by
Alexander M. Ineichen, CFA
UBS Warburg
February, 2002
Abstract
All hedge funds are not created equal. A poorly chosen portfolio
of hedge funds can produce disappointing results. All fund of
funds managers are not created equal, either.
A poor choice of fund of funds
managers can yield disappointing results. This article is
designed to outline the value proposition of a fund of hedge
funds operation. We conclude that fund of funds add value
primarily through manager selection.
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Building a Better Fund of Hedge
Funds: A Fractal and α - Stable Distribution Approach
by Yan
Olszewski
Maple Financial Alternative Investments
December 2005
Abstract
Markowitz's (1952) portfolio theory has permeated financial
institutions over the past 50 years. Assuming that returns are
normally distributed, Markowitz suggests that portfolio
optimization should be performed in a mean-variance framework.
With the emergence of hedge funds and their non-normally
distributed returns, mean-variance portfolio optimization is no
longer adequate.
Here, hedge fund returns are modeled with the alpha-stable
distribution and a mean-CVaR portfolio optimization is
performed. Results indicate that by using the alpha-stable
distribution, a more efficient fund of hedge funds portfolio can
be created than would be by assuming a normal distribution. To
further increase efficiency, the Hurst exponent is considered as
a filtering tool and it is found that combining hedge fund
strategies within a range of Hurst exponents leads to the
creation of more efficient portfolios as characterized by higher
risk-adjusted ratios. These findings open the door for the
further study of econophysics tools in the analysis of hedge
fund returns.
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Constructing Multi-Strategy Fund
of Hedge Funds
by Kamal
Suppal
Simon Fraser University
2004
Abstract
This paper aims to develop a systematic allocation methodology
to combine multi-strategy hedge funds within a structure of fund
of funds in a risk-controlled manner. This is particularly
important since the traditional mean-variance optimization
proves ineffective in addressing hedge fund return distributions
that are asymmetric in nature. Moreover, unstable correlations
among various hedge fund strategies also pose a challenge to a
meaningful optimization to combine various hedge fund
strategies...
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Efficient Fund of Hedge Funds
Construction Under Downside Risk Measures
by David P.
Morton, Elmira Popova, & Ivilina Popova
May, 2003
Abstract
We consider portfolio allocation in which the underlying
investment instruments are hedge funds. Benchmarks and
conditional-value-at-risk motivate a family of utility functions
involving the probability of outperforming a benchmark and
expected short-fall from another benchmark. Non-normal return
vectors with prescribed marginal distributions and correlation
structure are modeled and simulated using the normal-to-anything
method. A Monte Carlo procedure is used to obtain, and establish
the quality of, a solution to the associated portfolio
optimization model. Computational results are presented on a
problem in which we construct a fund of 13 CSFB/Tremont hedge
fund indices.
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Fund of Hedge Funds: Industry
Overview
by
Alexander M. Ineichen, CFA
January 4, 2002
Abstract
Given the current hype surrounding investing in hedge funds, we
assume that most investors by now will agree that investing in
hedge funds can make sense
when viewed not in isolation but in a portfolio context. The
next step, therefore,
is implementation. Investing in fund of hedge funds has some
advantages and
some disadvantages. This article is designed to look at the fund
of funds industry and contrast the advantages with the
disadvantages from the investors’ point of view.
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Fund of Hedge Funds Portfolio
Selection: A Multiple-Objective Approach
by Ryan J.
Davies, Harry M. Kat, and Sa Lu
Cass Business School, Babson College, & ISMA Centre, University
of Reading
October 21, 2004
Abstract
This paper incorporates investor preferences for return
distributions’ higher moments into a Polynomial Goal Programming
(PGP) optimization model. This allows us to solve for multiple
competing hedge fund allocation objectives within a
mean-variance-skewness-kurtosis framework. Our empirical
analysis underlines the existence of significant differences in
the return behavior of different hedge fund strategies...
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The fund of hedge funds reporting
puzzle
by Noel
Amenc, Phillippe Malaise, & Mathieu Vaissie
EDHEC Graduate School of Business
Abstract
Purpose – The development of alternative investment has not yet
been accompanied by genuine consideration of the specific
characteristics of the risks and returns of hedge funds with
regard to the provision of information to investors. To fill the
gap, in 2004 EDHEC launched an international consultation
process, seeking to implement a new framework for funds of hedge
funds reporting.
Design/methodology/approach – The consultation process was based
on a series of recommendations proposed by EDHEC with regard to
the academic state-of-the-art on risk measurement in the
alternative universe...
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In Search of the Optimal Fund of
Hedge Funds
by Harry M.
Kat
ISMA Centre, University of Reading, UK
October, 2002
Abstract
In this paper we investigate whether it is possible for a fund
of hedge funds to not only offer investors access to a
diversified basket of hedge funds but to provide skewness
protection at the same time. We study two different strategies.
The first is for a fund to buy stock index puts and leverage
itself, in the line with the skewness reduction strategy
proposed earlier in Kat (2002)...
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Portfolio Construction in
Fund-Of-Hedge-Funds
by Stuart
Slater
London Business School
May, 2002
Abstract
Large institutional investors have historically not invested in
hedge funds. The
marginal benefits of investing in less correlated asset classes
are increasingly
well known, and the institutions are increasingly under pressure
to gain exposure
to this class of alternative investments. The logical first step
is an investment in a
fund-of-hedge-funds (FOF)...
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Taking a Close Look at the
European Fund of Hedge Funds Industry
by Noel
Amenc, Jean René Giraud, Lionel Martellini, & Mathieu Vaissie
EDHEC RISK AND ASSET MANAGEMENT RESEARCH CENTRE
January 4, 2002
Abstract
Over the last few years institutional investors’ traditional
portfolios have failed to meet their objectives in terms
of risk and performance. Investors have thus shown growing
interest in new forms of diversification, especially
in investment vehicles that offer better protection during
extreme market conditions. This has naturally led them
to consider hedge funds as part of their investment universe.
The massive arrival of institutional investors in an “industry”
that up until then had been reserved to some High Net Worth
Individuals or Endowments/Foundations resulted in a dramatic
capital inflow and entailed a profound diversification of
investors’ risk profile.
Visit www.EDHEC-Risk.com for the full
paper...
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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
particular fund’s confidential offering documents with your
financial, legal and tax advisor and conduct such due diligence as
you (and they) deem appropriate. We do not provide investment advice
and no information or material on the Site is to be relied upon for
the purpose of making investment or other decisions. Accordingly, we
assume no responsibility or liability for a ny investment decisions
or advice, treatment, or services rendered by any investor or any
person or entity mentioned, featured on or linked to the Site.
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
particular fund's offering documents, which may be obtained directly
from the fund. Certain of the information, including investment
returns, valuations, fund targets and strategies, has been supplied
by the funds or their agents, and other third parties, and although
believed to be reliable, has not been independently verified and its
completeness and accuracy cannot be guaranteed. No warranty, express
or implied, representation or guarantee is made as to the accuracy,
validity, timeliness, completeness or suitability of this
information.
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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