By Lars Jaeger
There s a buzzword that has speedy captured the mind's eye of product companies and traders alike: "hedge fund replication". within the broadest feel, replicating hedge fund thoughts ability replicating their go back assets and corresponding chance exposures. despite the fact that, there nonetheless lacks a coherent photograph on what hedge fund replication capacity in perform, what its premises are, how one can distinguish di erent ways, and the place this may lead us to.
Serving as a instruction manual for replicating the returns of hedge cash at significantly cheaper price, substitute Beta thoughts and Hedge Fund Replication presents a special concentrate on replication, explaining alongside the best way the go back resources of hedge money, and their systematic hazards, that make replication attainable. It explains the history to the hot dialogue on hedge fund replication and the way to derive the returns of many hedge fund suggestions at a lot cheaper price, it differentiates many of the underlying methods and explains how hedge fund replication can enhance your individual funding procedure into hedge money.
Written via the well-known Hedge Fund specialist and writer Lars Jaeger, the ebook is split into 3 sections: Hedge Fund history, go back assets, and Replication concepts. part one presents a quick path in what hedge cash truly are and the way they function, arming the reader with the heritage wisdom required for the remainder of the booklet. part illuminates the resources from which hedge cash derive their returns and exhibits that most of hedge fund returns derive from systematic chance publicity instead of supervisor "Alpha". part 3 offers a variety of techniques to replicating hedge fund returns via offering the 1st and moment new release of hedge fund replication items, issues out the pitfalls and strengths of some of the methods and illustrates the mathematical innovations that underlie them.
With hedge fund replication going mainstream, this publication offers transparent counsel at the subject to maximize returns.
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Additional info for Alternative Beta Strategies and Hedge Fund Replication
E. they are limited in the amount of money they can manage without deteriorating returns. This applies for example to Relative Value strategies (Convertible Arbitrage, Fixed Income Arbitrage, Capital Structure Arbitrage). In fact, capacity is one of the key challenges funds of funds face trying to put the increasing bulk of money they are receiving from their investors to work. In addition, the entry of many more hedge fund managers creates a second kind of crowding which can be expected to deteriorate the average performance of all hedge funds.
Addressing these concerns one can say that brokers and banks have greatly improved their systems to evaluate their exposures to hedge funds in recent years (also as a consequence of their experience with LTCM in 1998). Derivatives contracts are much better designed for defaults than they were in the past. The debacle at the hedge fund Amaranth, for example, in late 2006 had only a trivial impact on the markets. And in the credit crisis that started in 2007 this myth was further dispelled. g. the collapse of Bear Stearns in March 2008.
Because of leverage, a hedge fund might experience problems if its assets experience a sharp drop and/or the market for these assets lacks liquidity so that the fund cannot exit its positions (often the combination of the two occurs). The collapse of a hedge fund could have far-reaching implications if the fund is large enough. When the Long Term Capital Fund lost more than $4 billion in the late summer of 1998, the Federal Reserve Bank of New York organized a rescue by private banks to avoid possible widespread damage from a possible disorderly liquidation or bankruptcy of the fund.
Alternative Beta Strategies and Hedge Fund Replication by Lars Jaeger