The Hedge Fund Law Report

The definitive source of actionable intelligence on hedge fund law and regulation

Articles By Topic

By Topic: Hedge Fund Replication

  • From Vol. 5 No.5 (Feb. 2, 2012)

    The Changing Face of Alternative Asset Management in Switzerland

    Switzerland is the third largest global centre of alternative asset management, after North America and the United Kingdom.  Around three times the size of Connecticut, the small, central European country boasts approximately 15% of global assets under management.  In a guest article, Matthew Feargrieve, leader of the Funds and Investment Services practice in the London and Zurich offices of Appleby, examines the composition of the Swiss alternative asset management market, focusing on single managers and managers of funds of hedge funds (FoHFs); reviews the current and prospective regulatory environment in Switzerland for each type of manager; and assesses the country’s future generally as a centre of alternative asset management against the backdrop of economic austerity and regulatory zeal in Europe.

    Read Full Article …
  • From Vol. 3 No.24 (Jun. 18, 2010)

    The Space between Alpha and Beta (and Why Hedge Fund Investors Should Care)

    The concept of alpha vs. beta within the investment community is anything but new.  But too often the discussion is black and white as if some universal on/off switch can only be turned to the traditional definitions of alpha or beta, with nothing existing in between.  We are at a time in the evolution of the hedge fund landscape when this topic is particularly meaningful, especially given the various labels that have been put on the industry such as “absolute return,” “uncorrelated asset class,” and “alpha generators.”  There are a number of methods and products today – devised by investment banks, fund managers and even an occasional academic – that claim to replicate hedge fund returns or provide something called hedge fund beta.  In a guest article, Clint Stone, CFA, Principal Investment Analyst covering hedge fund strategies at the investment office at Cornell University, summarizes the differences between the various replication and hedge fund beta methods, frames why hedge fund investors should care about these concepts and discusses how institutional investors may want to implement them (or at least think about them) in their asset allocation and portfolio construction.

    Read Full Article …
  • From Vol. 2 No.28 (Jul. 16, 2009)

    Hedge Fund Replication is Gaining in Popularity, but is it a Viable Alternative to Hedge Fund Investing?

    The turbulence of 2008 refocused the attention of hedge fund investors on three principal areas (in addition, of course, to performance): liquidity, transparency and fees.  In general, investors are demanding, as a condition of new or continued investment, greater liquidity, enhanced transparency and lower fees.  See “Hedge Fund Managers Grapple with Legal and Practical Consequences of Demands from CalPERS, URS and Other Pension Funds for Better Investment Terms and Separate Accounts,” The Hedge Fund Law Report, Vol. 2, No. 14 (Apr. 9, 2009).  However, to the extent managers give ground in any of these areas, their performance and operations can be complicated: enhanced liquidity can undermine the viability of longer-term investments; increased transparency can threaten the confidentiality of investment strategies; and lower fees can make it harder to attract and retain the best talent.  Investors still want access to hedge fund strategies – hedge funds as a group outperformed the broad equity indices in 2008 by a significant margin – but many have become skittish about traditional hedge fund structures.  Hence the growing popularity of so-called hedge fund “replication” strategies and funds.  Such hedge fund replication funds generally are registered investment companies that invest in liquid securities with the goal of tracking the performance of a group of hedge funds.  On the plus side, such funds generally offer daily liquidity, daily or frequent transparency and low fees (relative to traditional hedge fund fees).  On the negative side, they offer – or purport to offer – beta as opposed to alpha.  That is, they offer the returns of the hedge fund herd, as opposed to the returns of a star manager.  (By the same token, they generally avoid, or at least mitigate, the fallout from investment in a poor-performing or even fraudulent manager.)  In addition, the jury is still out on the ability of certain replication funds to faithfully track hedge fund indices by investing exclusively in liquid securities.  Nonetheless, interest among hedge fund investors and others in hedge fund replication is robust and growing.  We offer a comprehensive analysis of the pros and cons of hedge fund replication, including discussions of: what hedge fund replication is and how it works; the main providers of indices used for replication products; advantages and drawbacks of investing in replication strategies; and how institutional investors such as pension funds characterize investments in replication strategies for allocation purposes.

    Read Full Article …