Alternative Beta Strategies and Hedge Fund Replication by Lars Jaeger

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 experience, replicating hedge fund recommendations skill replicating their go back assets and corresponding chance exposures. although, there nonetheless lacks a coherent photo on what hedge fund replication capacity in perform, what its premises are, find out how to distinguish di erent methods, and the place this may lead us to.

Serving as a guide for replicating the returns of hedge cash at significantly cheaper price, substitute Beta ideas and Hedge Fund Replication offers a special specialise in replication, explaining alongside the way in which the go back assets of hedge cash, and their systematic hazards, that make replication attainable. It explains the history to the recent dialogue on hedge fund replication and the way to derive the returns of many hedge fund techniques at a lot lower price, it differentiates some of the underlying methods and explains how hedge fund replication can increase your individual funding strategy into hedge money.

Written through the well-known Hedge Fund specialist and writer Lars Jaeger, the e-book is split into 3 sections: Hedge Fund history, go back resources, and Replication strategies. part one presents a quick direction in what hedge cash truly are and the way they function, arming the reader with the historical past wisdom required for the remainder of the e-book. part illuminates the resources from which hedge cash derive their returns and indicates that most of hedge fund returns derive from systematic hazard publicity instead of supervisor "Alpha". part 3 provides a variety of techniques to replicating hedge fund returns through proposing the 1st and moment iteration of hedge fund replication items, issues out the pitfalls and strengths of many of the methods and illustrates the mathematical recommendations that underlie them.

With hedge fund replication going mainstream, this ebook offers transparent tips at the subject to maximize returns.

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3 displays this growth. Ironically the bear equity market period of 2000–2003 as well as occasional periods of market distress in the subsequent bull market from 2003 to 2007 coincided with unprecedented hedge fund underperformance (relative to their historic average, not relative to equity markets). The poor performance of hedge funds during stressful market conditions forces us to critically reassess the notion that ‘hedge funds are uncorrelated to traditional asset classes’. We cannot deny the fact that today the average hedge fund portfolio displays a substantial correlation with the broad equity markets, and periods of low performance are part of hedge fund investing as for any other investment.

Loomis, ‘The Jones nobody keeps up with’, Fortune Magazine, p. 237 (April 1966). 27 Ironically, both of these hedge fund veterans had to cease their trading almost in the same week in March 2000, after having both been around since the late 1960s. George Soros is today running his Quantum Endowment Fund in a much different (and more conservative) setting, and Julian Robertson has left the public investment scene. 28 J. Rohrer, ‘The red hot world of Julian Robertson’, Institutional Investors, May 1986, p.

An argument raised by E. Fama and K. French is that investors pursuing a strategy of buying high BV/PV stocks provide ‘recession insurance’ or ‘distress insurance’ to other investors, see E. Fama, K. French, ‘The cross section of expected stock returns’, Journal of Finance, 47, no. 2, p. 427 (June 1992). Another example is the outperformance of ‘momentum stocks’. g. related to the enhanced liquidity needs associated with these stocks). The academic discussion about the success of value and momentum investing is ongoing; see also the discussion in Chapter 5.

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