1) A smaller investor can achieve diversification within their hedge fund portfolio with a relatively small number of managers, rather than needing to allocate to 30 or more funds.
2) Analyzing portfolio risk and returns over the 2008 financial crisis, a portfolio consisting of stocks, bonds, bills, and a bundle of just 5 hedge fund managers outperformed the market index and a portfolio using a broad hedge fund index.
3) By focusing due diligence resources on a smaller number of managers, investors can achieve hedge fund exposure and diversification benefits at a lower cost than allocating to many managers or a fund of funds.
A sense of puzzlement surrounds the topic of hedge funds. Some investors are hesitant to invest because they find the concept foreign, preferring instruments with which they are more familiar. Others claim insight, but are quick to warn against the dangers of Hedge Funds, describing them as complex, high-risk investments that expose the investor to almost infinite downside risks in the pursuit of optimistic returns. Neither of these views are uncommon, although far from the truth. It is therefore important that these rumours and their origins are addressed and that investors are educated regarding the true nature of hedge funds.
A sense of puzzlement surrounds the topic of hedge funds. Some investors are hesitant to invest because they find the concept foreign, preferring instruments with which they are more familiar. Others claim insight, but are quick to warn against the dangers of Hedge Funds, describing them as complex, high-risk investments that expose the investor to almost infinite downside risks in the pursuit of optimistic returns. Neither of these views are uncommon, although far from the truth. It is therefore important that these rumours and their origins are addressed and that investors are educated regarding the true nature of hedge funds.
Presentation by Kees Koedijk. Professor of Financial Management and Dean of the Tilburg School of Economics and Management, held on June 8 at an ICPM conference in Toronto. Also visit the website www.investmentbeliefs.org
“Why do academics always talk about risk adjusted returns? I get that risk matters and you shouldn’t have a riskier portfolio than you can manage. But if I compare two strategies over a period, I’m better off at the end if I used the strategy with the higher return, not the one with the higher risk adjusted return. So why is risk adjusted return relevant?”
Presentations | Travel | Tourism
On March 19, is close and Salemi do I live, we celebrate St. Joseph, giver of spiritual gifts and materials in critical moments of existence. Traditional festival tied to the altar bread worked artistically. A small contribution by the undersigned, a traditional festival that is renewed every year in the community.
Il 19 Marzo si avvicina e a Salemi dove Io vivo, si festeggia San Giuseppe, elargitore di doni spirituali e materiali nei momenti critici dell'esistenza. Festa tradizionale legata all'altare di San Giuseppe e al pane lavorato artisticamente, che ogni anno si rinnova nella comunità, e nei paesi limitrofi poco distanti da Salemi, quali Vita e Gibellina.
Presentation by Kees Koedijk. Professor of Financial Management and Dean of the Tilburg School of Economics and Management, held on June 8 at an ICPM conference in Toronto. Also visit the website www.investmentbeliefs.org
“Why do academics always talk about risk adjusted returns? I get that risk matters and you shouldn’t have a riskier portfolio than you can manage. But if I compare two strategies over a period, I’m better off at the end if I used the strategy with the higher return, not the one with the higher risk adjusted return. So why is risk adjusted return relevant?”
Presentations | Travel | Tourism
On March 19, is close and Salemi do I live, we celebrate St. Joseph, giver of spiritual gifts and materials in critical moments of existence. Traditional festival tied to the altar bread worked artistically. A small contribution by the undersigned, a traditional festival that is renewed every year in the community.
Il 19 Marzo si avvicina e a Salemi dove Io vivo, si festeggia San Giuseppe, elargitore di doni spirituali e materiali nei momenti critici dell'esistenza. Festa tradizionale legata all'altare di San Giuseppe e al pane lavorato artisticamente, che ogni anno si rinnova nella comunità, e nei paesi limitrofi poco distanti da Salemi, quali Vita e Gibellina.
Presentación que permite poner en práctica una unidad didáctica en el teatro. Los alumnos aprenderán cómo se elabora un guión radiofónico y los elementos de un estudio de grabación de radiofónico. Después, lo pondrán en practica sobre el escenario.
Risk Factors as Building Blocks for Portfolio DiversificationCallan
Author: Eugene Podkaminer
Asset classes can be broken down into building blocks, or factors, that explain the majority of the assets’ risk and return characteristics. A factor-based investment approach enables the investor theoretically to remix the factors into portfolios that are better diversified and more efficient than traditional portfolios.
Seemingly diverse asset classes can have unexpectedly high correlations—a result of the significant overlap in their underlying common risk factor exposures. These high correlations caused many portfolios to exhibit poor diversification in the recent market downturn, and investors can use risk factors to view their portfolios and assess risk.
Although constructing ex ante optimized portfolios using risk factor inputs is possible, there are significant challenges to overcome, including the need for active, frequent rebalancing; creation of forward-looking assumptions; and the use of derivatives and short positions. However, key elements of factor-based methodologies can be integrated in multiple ways into traditional asset allocation structures to enhance portfolio construction, illuminate sources of risk, and inform manager structure.
Hedge funds have been criticized for taking hefty fees without a performance to match. This presentation takes a look at the issue of hedge fund performance looking at both sides of the equation and evaluating how hedge funds fit into an investment portfolio.
Warren Buffett recently discussed his win of a decade long wager in the 2017 Annual Report of Berkshire Hathaway. His winning claim was that an investment in a US equity index would outperform a selected group of hedge funds over the period. Although, over time, equity is a strong return generating asset class, the majority of investors are not in the privileged position where they not only have the luxury of time and emotional fortitude, but also sufficient excess capital to be able to fully invest in such a risky asset class to reap the reward that comes with time. The role of hedge funds in the portfolio construction of these investors is explored.
A presentation about advantages of Spoke Fund(R) over other traditional investment products and our approach to investing at The Free Investors, an Independent registered investment adviser.
1. Hedgeharbor Navigator
May 2012
Diversification: Can Less Be More?
Diversifying an investment portfolio by including hedge funds is possible to achieve by
allocating to a relatively small number of managers. A smaller investor—such as a family office
or small institution—considering adding hedge funds to their portfolio can achieve
diversification with a relatively small number of managers.
Investors understood the benefits of diversification well the combination of stocks, bonds and T‐Bills with a 10
before Harold Markowitz published his Nobel Prize‐ percent allocation to a broad group of 2,000 hedge
winning research in 1952. The old adage “Don’t put all funds as represented by the HFRI Fund‐Weighted
your eggs in one basket” predates Markowitz’s work Composite Index. Finally, we replaced the index with a
probably by centuries. Markowitz’s contribution—and bundle of five managers that Hedgeharbor represents
that of others in the field of portfolio theory—was to with the same overall allocations to equities, bonds and
help investors quantify the diversification benefit they T‐Bills. Chart 1 shows the risk‐reward characteristics for
achieved by adding more investments to their portfolio. these three sets of portfolios.
Hedge fund investors have implemented the The time frame for this analysis was the common time
prescription of diversification in many ways. period of the five Hedgeharbor managers. The
Institutional investors and funds of hedge funds performance for this common time period began in
diversify across asset classes, strategies, geographic March 2008—at the onset of the global financial crisis—
focus, and other dimensions. Such investors often and covers the aftermath of the crisis as well.
attempt to achieve diversification across these
Chart 1: Risk‐Reward Characteristics
dimensions by allocating to 30 or more single hedge
6.0%
funds. But such broad diversification in hedge funds
may not be necessary to reduce the overall risk in a
HH Bundle
portfolio. 5.5%
Compound ROR
Some research suggests that the additional benefits of
HH
diversification declines as the number of hedge fund 5.0% Standard +
managers in a portfolio increases.1 Adding a few HFRI HH
managers can add diversification benefits to a portfolio, Standard
4.5%
but at some point more may not be better.
In order to demonstrate the idea of diversification
4.0%
benefits are achievable even when allocating to
9.0% 10.0% 11.0% 12.0%
relatively few hedge fund managers, we compared the
risk‐reward characteristics for three sets of Standard Deviation
investments. The first was a simple allocation to stocks, During this period, not surprisingly, given the time
bonds and US Treasury Bills. The second portfolio was period covered, an investment in a standard
combination of equities, bonds and US Treasury Bills
produced the highest volatility of the three portfolios.
1
As an example, see How Many Hedge Funds Are Needed to
Adding a 10 percent allocation of the broad hedge fund
Create a Diversified Fund of Funds?, Asset Alliance Corp.,
2002 index reduces the volatility, but contributed negatively
2. to returns during this period. Replacing the broad hedge manager represents only 2.5 percent of the larger
fund index with a 10 percent allocation to the overall portfolio, so even if one manager suffers a large
Hedgeharbor five‐manager bundle, however, both loss or some idiosyncratic risk event, the impact on the
increased returns and lowered volatility. portfolio is manageable.
The key to achieving these diversification benefits of Some smaller institutional investors will still chose to
course is careful manager selection. That means allocate to funds of hedge funds as a means of gaining
devoting resources and effort to identifying and alternative investments exposure. It is by conducting
evaluating the managers that ultimately go into the research and due diligence on a large number of single
investor’s portfolio. manager funds and exhibiting skill in constructing
portfolios of these managers that funds of funds
Performing research and conducting due diligence
provide the greatest benefit to investors. Nevertheless,
reviews on a large number of hedge funds typically
as we have shown here, it is possible for an investor to
requires greater resources than many smaller investors
gain the diversification benefit of hedge funds by
can or are willing to devote to a relatively small
investing directly in a limited number of single
percentage of their overall portfolio. By focusing these
managers.
resources on fewer managers, the investor can achieve
the benefits of such investments at a more reasonable Hedgeharbor stands ready to assist investors in
cost. identifying quality single managers as well as multi‐
manager products that meet their investment goals and
Of course, by being more concentrated in a smaller
objectives.
number of managers, the risk of failure of any one of
them is magnified. However, in this example any one