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Investing in Hedge Funds, Revised and Updated Edition by Joseph G. Nicholas

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APPENDICES

APPENDIX A

CALCULATION METHODOLOGY

The relevance of any performance index is its ability to gauge objectively market movement so that it may be used as a benchmark for various investment styles. In particular, when using an index such as the S&P 500 index or the Dow Jones Industrial Average, it is important to understand the construction of these indexes. It would seem inappropriate to use the S&P 500 as a benchmark for an investment firm that concentrates on small-cap equities, just as it would be inappropriate to use the Dow as a benchmark for a firm that invests in corporate debt. I believe that it is inaccurate to compare hedge fund performance with only passive indexes such as the S&P 500.
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