How Do Hedge Fund Clones Manage the Real World?
Via SSRN:
Interesting paper from authors Nils Tuchschmid, Erik Wallerstein and Sassan Zaker of Julius Baer Asset Management. They suggest that hedge fund clones are broadly succeeding in replicating the investment returns of real hedge funds. At the same time, however, some clones have exhibited too much correlation with equity markets and also have raised fears among some investors about the increasing complexity of replication models, the researchers warned.
The report, which looked at 21 clones over the period April 2008 to May 2009, concluded: “Hedge fund replication products seem to deliver competitive performance relative to hedge funds. More importantly they are able to deliver this at a far lower fee level than hedge funds.”
The authors’ research found that the vast majority of clones exhibited a correlation of at least 70 per cent to industry benchmarks operated by Hedge Fund Research and Credit Suisse/Tremont. Most lost less than the typical 10-15 per cent declines recorded by the industry at large, although Wallerstein cautioned, the relative performance of clones in a bull market remained unproven. “Shortable” clones, which allow investors to benefit from losses in the underlying industry, appear to succeed in mirroring long approaches, he added.
Read the paper here
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