Funds of Hedge Funds: Performance, Assessment, Diversification, and Statistical Properties

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With about $450 billion in assets, funds of hedge funds are the most recent darling of investors. While hedge funds carry high risk for the promise of high returns they are designed for the very rich and for large institutional investors such as pension funds. A Fund of Hedge Funds (FOF) spreads investments among a number of hedge funds to reduce risk and provide diversification, while maintaining the potential for higher than average returns. Odds are that some pension fund of yours is invested heavily in these products, and more recently these FOFs have been opened to more and more individual investors in offshore jurisdictions with lower minimum entry levels. Since this is a new and extremely fast-moving financial phenomenon, academic research has just begun in earnest, and this is the first book to present rigorous academic research by some of the leading lights in academic finance, carefully analyzing the broad array of issues involved in FOFs.

• With over $450 billion in assets, hedge funds of funds are the darling of investors
• First book to present rigorous academic research about funds of funds
• Leading lights in academic finance from around the world analyze the broad array of issues involved in funds of funds

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Editorial Reviews

From the Publisher
"Want to learn all about hedge funds and funds of hedge funds and sift out the truth from the misconceptions? Then read this comprehensive assessment of the field. It goes from A to Z in coverage and together all the papers provide a good course in this fast growing and controversial subject."
— William T. Ziemba, Alumni Professor of Financial Modeling and Stochastic Optimization (Emeritus), Sauder School of Business, University of British Columbia

"Funds of hedge funds are fast emerging as one of the most popular alternative investment vehicles offering diversification, access to hedge funds that are closed for new investment, and due diligence. This great collection of research articles on funds of hedge funds will surely inform the readers about the pros and cons associated with investing in funds of hedge funds."
— Vikas Agarwal, Assistant Professor of Finance, J. Mack Robinson College of Business, Georgia State University

"The international demand for hedge funds from institutional investors is gaining more and more momentum. As most of this growth can be attributed to funds of hedge funds, this excellent new edited book couldn’t be more timely. Again, the editor has done an outstanding job of gathering contributions of great academic and practical use from some of the leading authorities in this area often considered as opaque. Fund of Hedge Funds is the definitive source of information for industry professionals, institutional investors and academics alike. A more comprehensive analysis of the Performance, Application and Risk Management of fund of hedge funds is hard to come by."
— Dieter G. Kaiser, Institutional Research, Benchmark Alternative Strategies GmbH

"According to TASS Tremont, the fraction of hedge funds that are funds of funds has doubled over the past five years, to 28 percent of all hedge funds as of September 2005. Attention must be paid. Academics have only just recently started to become interested in this business. This book of readings is one the first published collections of original scholarly papers on this subject. It is of great interest to many academics as well as of course to the many practitioners who are in the business today or who would very much like to enter the fund of funds business."
— Stephen J. Brown, David Loeb Professor of Finance, NYU Stern School of Business

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Product Details

  • ISBN-13: 9780750679848
  • Publisher: Elsevier Science
  • Publication date: 7/18/2006
  • Series: Quantitative Finance Series
  • Pages: 496
  • Product dimensions: 6.30 (w) x 9.00 (h) x 1.28 (d)

Meet the Author

Greg N. Gregoriou is Professor of Finance, School of Business and Economics, State University of New York at Plattsburgh. He is Research Associate at the Caisse de dépôt et placement du Québec Endowed Chair in Portfolio Management at the University of Quebec at Montreal, as well as Lecturer in the School of Continuing Studies at McGill University.

Professor Gregoriou has published several books with Elsevier including the two-volume Handbook of Asian Finance, Reconsidering Funds of Hedge Funds, Valuation and Pricing Models, and the Handbook of Short Selling, and is hedge fund editor and editorial board member of the Journal of Derivatives and Hedge Funds


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Table of Contents

1 Rank alpha funds of hedge funds
Carol Alexander and Anca Dimitriu
2 Funds of hedge funds: bias and persistence in returns
Daniel Capocci and Georgers Hübner
3 Replication and evaluation of fund of funds returns 1994-2005
Harry M. Kat and Helder P. Palaro
4 Factor decomposition of fund of funds returns
Jean-François Bacmann, Pierre Jeanneret, and Stefan Scholz
5 Optimal fund of fund asset allocation: hedge funds, CTAs and REITs
Nicolas Papageorgiou and Alain Elkaim
6 The changing performance and factor risks of fund of funds in the modern period
Keith H. Black
7 Hedge fund indices: are they cost-effective alternatives to fund of funds?
Kathryn Wilkens
8 Simple hedge fund strategies as an alternative to funds of funds: evidence from large cap funds
Greg N. Gregoriou, Georges Hübner, Nicolas Papageorgiou, and Fabrice Rouah
9 Funds of funds of hedge funds: welcome to diworsification
François-Serge Lhabitant and Nicolas Laporte
10 Style analysis of funds of hedge funds: measurement of asset allocation and style drift
Andreas Oehler and Oliver A. Schwindler
11 Gains from adding funds of hedge funds to portfolios of traditional assets: An international perspective
Niclas Hagelin, Bengt Pramborg, and Fredrik Stenberg
12 Tactical asset allocation for hedge fund indices at one- to six-month horizons
Laurent Favre
13 Single strategy funds of hedge funds: how many funds?
Ryan J. Davies, Harry M. Kat, and Sa Lu
14 The distributional characteristics of fund of hedge fund returns
Elaine Hutson, Margaret Lynch and Max Stevenson
15 Funds of funds and diversification effect
Maher Kooli
16 Higher-moment performance characteristics of funds of funds
Zsolt Berenyi
17 The market risk of funds of hedge funds: a conditional approach
Florent Pochon and Jérôme Teïletche
18 Revisiting the Fama and French model: An application to funds of funds using nonlinear methods
Eric Dubé, Clément Gignac and François Eric Racicot
19 Investor’s choice: an investor-driven, forward-looking optimization approach to fund of hedge fund construction
Clemens H. Glaffig
20 Moments analysis in risk and performance monitoring of funds of hedge funds
David K.C. Lee, Kok Fai Phoon, and Choon Yuan Wong
21 An overview of funds of hedge funds
Jean Brunel

22 Institutional investment due diligence on funds of hedge funds
John E. Dunn, III
23 Synthetic CDO squares and the continuing evolution of funds of funds
Paul Ali
24 Natural resources fund of funds: essays on active management, risk management, and due diligence
25 Identifying and monitoring risk in a fund of hedge funds portfolio
Meredith A. Jones
26 The wizardry of analytics for funds of funds
Mary Fjelstad and Leola Ross
27 Quantitative hedge fund selection for fund of funds
Stephan Joehri and Markus Leippold

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