Portfolio optimisation for a Fund of Hedge Funds (“FoHF”) has to address the asymmetric, non-Gaussian nature of the underlying returns distributions. Furthermore, the objective functions and constraints are not necessarily convex or even smooth. Therefore traditional portfolio optimisation...

In the first of two papers, we present a factor-decomposition based framework that facilitates non-parametric risk analysis for complex hedge fund portfolios in the absence of portfolio level transparency. Our approach has been designed specifically for use within the hedge funds-offunds...

On the surface, hedge funds seem to have much higher fees than actively managed mutual funds. However, the true cost of active management should be measured relative to the size of the active positions taken by a fund manager. A mutual fund combines active positions with a passive position in...

This paper presents a forward looking model for selection of hedge fund investment strategies. Given excess skewness observed in hedge funds' return distributions, we assume that the historical returns have a skew student t distribution. We implement a Bayesian framework to derive the parameters...

This paper explores the optimisation of asset allocation within “alternative” investments, i.e. between private equity and hedge funds, as well as between private equity and public equities. It uses our proprietary Portfolio Blender tool. As a preliminary step before the optimisation, we...

In the aftermath of the Global Financial Crisis, some risk management practitioners have advocated wider adoption of Bayesian inference to replace Value- at-Risk (VaR) models in order to minimize risk failures. Despite its limitations, the Bayesian methodology has significant advantages. Just...

In aftermath of the Financial Crisis, some risk management practitioners advocate wider adoption of Bayesian inference to replace Value-at-Risk (VaR) models for minimizing risk failures (Borison & Hamm, 2010). They claim reliance of Bayesian inference on subjective judgment, the key limitation...

This paper discusses Hedge funds' risks, in particular the leverage risk, as it has the greater effect when applied both to derivatives or other asset classes alike. Evaluation of the effect of leverage could become complicated as this effect could be escalated by the liquidity and credit risks...

This paper aims at analysing the mortality patterns of hedge funds over the period January 1994 to May 2008. In particular, we investigate the extent to which a spillover of risk among hedge funds through redemptions and failures of other funds has affected the probability of fund failure. We...