Hedge Funds of Funds: A Guide for Investors

15

The Leading Edge: Recent Innovations in the Hedge Fund of Funds World

15.1 OVERVIEW

In this chapter, we will take a look at some work in the hedge fund space from academics, and some recent innovations from practitioners in the field. Given that the research of the former often provides product ideas for the latter, it is beneficial to look at both parties. For example, the Goldman Sachs research paper issued in 2004 (Goldman Sachs, 2004) resulted in the Goldman Sachs ART hedge fund replication vehicles launched in December 2006. As a result, I will present new work by topic, irrespective of academic or practitioner origin. Specifically, I will look at the academic and practitioner work one each of the following areas:

• Hedge fund returns
• Hedge fund indexation and replication
• Hedge fund structures and structured products
• Hedge fund risk
• Other hedge fund work

I will cover ongoing work and working papers as well as peer-reviewed publications in journals in order to fully represent current areas of research, as it can take a considerable amount of time to get work published. Wherever possible, I have included the latest work on the subject area (i.e. since 2005) but have also referenced older ‘classic’ papers when their relevance is still strong.

15.2 HEDGE FUND RETURNS

Some of the first published academic work on hedge funds was based around analysis of track records through databases and indices, and has shown that basic results imply that hedge funds are capable of superior ...