Hedge Fund Benchmarking and Absolute Returns

Testing whether hedge fund portfolios add value

JAMES FISHER AND DAN COVICH, ASSOCIATE DIRECTORS, PAVILION ALTERNATIVES GROUP

How can we test whether a hedge fund programme is adding value to large institutional investor portfolios? This question has grown in importance since the financial crisis, as an eight-year equity bull market has made hedging unattractive. Frequently, hedge fund programmes are compared to the asset class they most resemble (for example, a hedge fund programme is sometimes compared to a long-only equity index, such as the MSCI All Country World Index). In this context, the performance of many hedge...

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