For those interested in academic papers....
We used our technology of replication of hedge fund returns (http://papers.ssrn.com/sol3/papers.cfm?abstract_id=855424), to evaluate the performance of Hedge Funds in the following two papers:
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1) Replication and Evaluation of Fund of Hedge Funds Returns
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=873465
In this paper we use the hedge fund return replication technique recently introduced in Kat and Palaro (2005) to evaluate the net-of-fee performance of 485 funds of hedge funds. The results indicate that the majority of funds of funds have not provided their investors with returns, which they could not have generated themselves by trading S&P 500, T-bond and Eurodollar futures. Purely in terms of returns therefore, most funds of hedge funds have failed to add value.
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2) Superstars or Average Joes? A Replication-Based Performance Evaluation Of 1917 Individual Hedge Funds
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=881105
In this paper we use the hedge fund return replication technique recently introduced by Kat and Palaro (2005) to evaluate the net-of-fee performance of 1917 individual hedge funds. Comparing fund returns with the returns on dynamic futures trading strategies with the same risk and dependence characteristics, we find that no more than 17.7% of the hedge funds in our sample beat the benchmark. In other words, the majority of hedge funds have not provided their investors with returns, which they could not have generated themselves by mechanically trading S&P 500, T-bond and Eurodollar futures. Over time, we observe a substantial deterioration in overall hedge fund performance. In addition, we find a tendency for the performance of successful funds to deteriorate over time, which supports the hypothesis that increasing assets under management endanger future performance.
We used our technology of replication of hedge fund returns (http://papers.ssrn.com/sol3/papers.cfm?abstract_id=855424), to evaluate the performance of Hedge Funds in the following two papers:
*************************************************
1) Replication and Evaluation of Fund of Hedge Funds Returns
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=873465
In this paper we use the hedge fund return replication technique recently introduced in Kat and Palaro (2005) to evaluate the net-of-fee performance of 485 funds of hedge funds. The results indicate that the majority of funds of funds have not provided their investors with returns, which they could not have generated themselves by trading S&P 500, T-bond and Eurodollar futures. Purely in terms of returns therefore, most funds of hedge funds have failed to add value.
*************************************************
2) Superstars or Average Joes? A Replication-Based Performance Evaluation Of 1917 Individual Hedge Funds
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=881105
In this paper we use the hedge fund return replication technique recently introduced by Kat and Palaro (2005) to evaluate the net-of-fee performance of 1917 individual hedge funds. Comparing fund returns with the returns on dynamic futures trading strategies with the same risk and dependence characteristics, we find that no more than 17.7% of the hedge funds in our sample beat the benchmark. In other words, the majority of hedge funds have not provided their investors with returns, which they could not have generated themselves by mechanically trading S&P 500, T-bond and Eurodollar futures. Over time, we observe a substantial deterioration in overall hedge fund performance. In addition, we find a tendency for the performance of successful funds to deteriorate over time, which supports the hypothesis that increasing assets under management endanger future performance.
