Performance Characteristics of Hedge Fund Replication Programs

Hedge Fund Replication has generated significant academic and practitioner interest in recent years. This interest has been translated into several product offerings by the major investment backs such as Goldman Sachs, Morgan Stanley and J.P Morgan. Replication products generally follow three approaches: security-based replication, factor-based replication and distribution-based replication. In this article we examine the performance characteristics of various hedge fund replication programs. The results show that the performance of the replication products can vary significantly. As with individual funds, the volatilities and performance of the replication programs vary widely. We also find significant variation in the factor loadings of the various replication based products. Ultimately, we conclude that our analysis is limited by the limited history of replication, and that a more robust dataset is necessary to rigorously analyze the performance of these programs