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Digital Subscriptions > The Hedge Fund Journal > Issue 121 - March | April 2017 > Hedge Fund Benchmarking and Absolute Returns

Hedge Fund Benchmarking and Absolute Returns

Testing whether hedge fund portfolios add value


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 fund managers has lagged significantly since 2009. Given that hedge funds may have lower market exposures than a long-only equity benchmark, is this fair? If not, how should they be measured? We argue that a beta-matched mix of stocks and bonds is the most appropriate measuring stick for customized hedge fund programmes, as it compares them to the risk profile that investors could achieve using traditional markets.

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Informing the Hedge Fund Community. With access to some of the industry’s biggest names and an astute and talented group of writers and contributors, The Hedge Fund Journal has established itself as a trusted source of information on the hedge fund industry.