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Hedge Fund Replication, though in its nascence, is enjoying a great deal of interest. A number of different approaches have recently been postulated by practitioners and academics. This article examines a number of them, commenting on their rationale, feasibility and prospects for success. |
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The biggest challenge for many hedge funds is trying to satisfy a diverse set of investors with one, and only one, fund. A well designed managed account can be infinitely superior to a portfolio of hedge funds simply because it can be constructed to be perfectly alternative to that which it supplements. This is something no hedge fund or fund of funds can achieve. This articles explores this idea. |
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Even the least sophisticated of hedge fund investors understand that alpha is something to be pursued. The irony is that many an investor and fair few hedge fund professionals only have a vague understanding of what alpha really is or the important principles that underlie it. Alpha's precise definition, its short supply, the impediments to finding it, and its real utility are not well understood. This article corrects this by presenting an intuitive explanation of what alpha really is. |
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This white paper argues that hedge funds are chronically misused by investors because they select ones that do not improve their overall portfolio. The paper goes on to argue that only comprehensive understanding of the nature of hedge fund risks and returns allows an investor to choose funds that actually improve her portfolio. It concludes by suggesting investors spend time and resources to gain these skills or else pay for help. |
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The Sharpe ratio is a misinterpreted and dangerously deceptive metric. When used to characterize the risks and returns of hedge funds, the number often misrepresents the fund to the detriment of naïve investors. This article looks at the endemic misuse of Sharpe Ratios in the hedge fund industry. |
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When evaluating a hedge fund, an investor must ultimately make many critical decisions subjectively. Competency of management and viability of trading strategies being two examples where there is simply no objective measurement mechanism. But when it comes to the fund's risk management, an investor can in fact apply some quite objective criteria. There are axioms that can be used to assess a firm's ability to manage operational and financial risks. This article examines how to recognize a well (risk) managed hedge fund. |
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