In this paper, we propose a method for hedge fund replication using a factor-based model supplemented with a series of risk and return constraints that implicitly target all the moments of the hedge fund return distribution. We use the approach to replicate the monthly returns of ten broad hedge...

Hedge funds offer desirable risk-return profiles; but we also find high management fees, lack of transparency and worse, very limited liquidity (they are often closed to new investors and disinvestment fees can be prohibitive). This creates an incentive to replicate the attractive features of...

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...

Hedge funds offer desirable risk-return profiles; but we also find high management fees, lack of transparency and worse, very limited liquidity (they are often closed to new investors and disinvestment fees can be prohibitive). This creates an incentive to replicate the attractive features of...

Performance measurement is an area of crucial interest in asset valuation and investment management. High volatility as well as time aggregation of returns, amongst other characteristics, may distort the results of conventional measures of performance. In this work, we study the performance of...

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 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...

This paper provides evidence on the interaction between hedge funds' performance and their market liquidity risk and funding liquidity risk. We demonstrate that funding liquidity risk is an important determinant of hedge fund performance. Hedge funds with high loadings on the funding liquidity...

Part 1 of this paper can be found at 'http://ssrn.com/abstract=2602785' http://ssrn.com/abstract=2602785.This article is the second in a two-part series. The goal of this series is to discuss the innovative ways in which academics and practitioners are enhancing the risk allocation framework in...

This article is the first in a two-part series. The series will discuss the innovative ways in which academics and practitioners are enhancing asset allocation methodologies in order to incorporate hedge funds. This article will begin by discussing the current practice in asset allocation work,...