Hopes were high some years ago that hedge fund replication products would be for hedge fund investments something akin to what index funds have been to equity investments. Hedge fund replication products were to provide a low-cost, liquid exposure to hedge fund returns. Around one year ago,...

What is the appropriate level of portfolio allocation towards fund of hedge funds? The well-known core-satellite approach would give a number around 5% or 10%, fund of hedge funds being the satellite allocation. The core allocation should be given to often low-fee, passively managed, classical...

This article analyses a new data base on Ucits "hedge funds", or alternative Ucits funds. These are EU regulated investment vehicles allowing for a relatively large degree of latitude for fund managers which makes them attractive for hedge fund-like strategies. The asset under management of...

This paper studies the performance of a sample of funds of hedge funds (FoHFs) from January 1994 to August 2009. We apply the false discoveries (FD) technique of Barras, Scaillet and Wermers (2010) to separate the FoHFs into skilled, zero-alpha and unskilled. We measure the alpha of the FoHFs...

Whereas return is risky, excess return (alpha) is uncertain. This distinction has surprisingly broad practical implications for investors. Alpha-Uncertainty is a new pair relationship to be considered along the Risk-Return relationship established by modern portfolio theory. Uncertainty...

Alpha Uncertainty Principle introduces a new relationship between alpha potential and alpha uncertainty. Alpha uncertainty increases with degrees of freedom used in active management. This uncertainty cost has been largely ignored by investors. As a result free put options have been written to...

A powerful investor trend towards passive over active management seems to have become the new normal in the investment industry. The passive “end of history” thesis has a kernel of empirical truth. Passivation, however, is an imperfect match to wealth management clients' individual demand...

The Wealth Management (WM) industry is in transformation and yet, unlike institutional investors, there is no dedicated investment model to guide through this transformation. The prevailing classical, institutional asset allocation model (C-AA), increasingly endorsed by the WM industry, is more...

Classical wealth management heavily relies on the linear and two-dimensional world of Modern Portfolio Theory. While this has generally worked for investors, many new investment offerings only inadequately map into the CW world. This inadequacy is a source of potentially large investor losses,...

In the world of investing, diversification is usually regarded as the only true free lunch. Market efficiency, an even more crucial free lunch, is taken for granted. Market efficiency is foundational in wealth management. It is not just the axiom and corner stone of Modern Portfolio Theory. It...