By Lars Jaeger
There s a buzzword that has quick captured the mind's eye of product companies and traders alike: "hedge fund replication". within the broadest feel, replicating hedge fund innovations capacity replicating their go back assets and corresponding hazard exposures. although, there nonetheless lacks a coherent photograph on what hedge fund replication potential in perform, what its premises are, tips to distinguish di erent ways, and the place this may lead us to.
Serving as a instruction manual for replicating the returns of hedge money at significantly lower price, Alternative Beta recommendations and Hedge Fund Replication offers a special specialize in replication, explaining alongside the best way the go back resources of hedge money, and their systematic dangers, that make replication attainable. It explains the history to the hot dialogue on hedge fund replication and the way to derive the returns of many hedge fund recommendations at a lot lower price, it differentiates a number of the underlying ways and explains how hedge fund replication can enhance your individual funding approach into hedge funds.
Written by way of the well-known Hedge Fund specialist and writer Lars Jaeger, the e-book is split into 3 sections: Hedge Fund heritage, go back resources, and Replication innovations. part one offers a brief path in what hedge cash truly are and the way they function, arming the reader with the heritage wisdom required for the remainder of the publication. part illuminates the assets from which hedge cash derive their returns and exhibits that most of hedge fund returns derive from systematic chance publicity instead of supervisor "Alpha". part 3 offers a number of methods to replicating hedge fund returns via proposing the 1st and moment new release of hedge fund replication items, issues out the pitfalls and strengths of a few of the techniques and illustrates the mathematical thoughts that underlie them.
With hedge fund replication going mainstream, this booklet offers transparent suggestions at the subject to maximize returns.
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Extra resources for Alternative Beta Strategies and Hedge Fund Replication (Wiley Finance)
Lederman, R. Klein, Hedge Funds: Investment and Portfolio Strategies for the Institutional Investor (1995). 30 See also D. Strachmann, Julian Robertson – A Tiger in the Land of Bulls and Bears (2004). P1: JYS c02 JWBK289-Jaeger 24 August 18, 2008 8:47 Printer: Yet to come Alternative Beta Strategies and Hedge Fund Replication Excursion: Soros fund management Soros started his hedge fund in 1969. The Quantum Endowment Fund had assets of about USD 22 billion at its peak in 1998. In contrast to Tiger, the fund was not closed down in 2000, but had massive losses in March/April 2000 (down –32%) and underwent significant restructuring, after having generated an average annual return of 36% since inception.
The strong flow of hedge fund assets into leveraged bank loans, mezzanine financings, insurance linked securities (ILS) or even direct leveraged buyout transactions reflects that development and requires hedge funds to compete against established private equity players. In summary, ‘hedge funds have gone public to private’. g. E. ) provide a first hand illustration of that new trend. ’ some investors might ask. Fifteen years ago investing in emerging markets was marketed as a new way of decreasing overall portfolio risk.
Hedge fund replication builds on the premise that a large part of the return sources of hedge funds are risk premia and outlines what the underlying systematic risks are. Nevertheless market inefficiencies, once they occur, can offer superior returns to those who are capable of exploiting them. They occur mostly in markets where information does not flow freely, as is often the case in less liquid and smaller markets (which, however, bear their own risks – mostly related to limited liquidity, as the events since the summer of 2007 have served investors as a valuable reminder).