Visualizing Financial Data

Chapter 10 Hedge Funds

Every hedge fund investors’ primary question is, “Can this hedge fund produce absolute returns?” It is the job of the hedge fund manager to ensure this question can be answered with a resounding “Yes;” positive returns using alternative investment management techniques can be achieved. Although we cannot predict if a fund will produce absolute returns, data visualizations can surface patterns and behaviors of funds based on their characteristics to better analyze strategies.

This chapter focuses on evaluating hedge funds from the perspective of the investor and the investment consultant who advises fund investors. We examine two important sets of hedge fund data to compare funds and strategies, starting with data from an individual fund and ending with data for the industry overall. Neither set of data is unique or proprietary to a specific firm’s methodology and instead is available publicly, providing a glimpse into the hedge fund world.

The chapter begins by reviewing an example of exposure breakdowns for a fund to reveal the long/short aspects that are seen in many funds. The ability to employ a range of trading strategies of long and short positions in traditional and nontraditional markets can markedly influence fund performance. The visualization examples explore how these market exposures present patterns and correlate to market movements. ...