Hedge fund return predictability depends on having a long track record to analyze. How long is long enough? You won’t like the answer.
In this quick note on compounding vs volatility. I demonstrate how volatility of returns interferes with the compounding process leading to returns lower than the casual observer might expect. I raise the specter of how this may negatively impact portfolio optimization.
Before you can start analyzing hedge funds you need to scrub the data. We look at the basics of hedge fund data hygiene. We give you some tips and tricks specific to Hedge Funds, and tell you what to watch out for.
I make the case for alternatives in institutional portfolios. Far from reducing exposure to hedge funds, investors should be increasing it. Simple portfolios and dramatic results make the point.
Applying a linear trend line to the value added monthly index gives a better estimate of returns than compound annual growth rate. It differentiates between different return distributions and is less affected by noise.