Tue, Dec 1, 2015
Welcome Guest
Free Trial RSS
Get FREE trial access to our award winning publications
Alternative Market Briefing

Other Voices: Not your father’s fund of hedge funds

Thursday, August 04, 2011

By Michael Bernstein, CFA, CAIA

If you ask ten funds of hedge fund (“FOHF”) managers to state whether they generate more of their returns from manager selection or strategy allocation, a couple of things will happen. The first is that all 10 will tell you it is very difficult to quantify how much comes from one vs. the other. This is true, but when hard pressed (i.e., when forced to fill out an RFP for a $250m mandate) most will cough up an answer. And that answer, in the overwhelming majority of cases, is that at least 2/3 of their return comes from manager selection, with strategy selection accounting for no more than 1/3.

Why is this the case? After all, don’t FOHF managers spend their days speaking with a huge range of hedge fund managers, arguably the most opinionated and talented investment professionals on the planet? Surely, in the course of their day-to-day interactions with these hedge fund managers, the FOHF managers must formulate some of their own opinions about the direction of the markets, don’t they?

The answer is, of course, yes. It would be a particularly weak-kneed FOHF manager that didn’t have a view on markets after conducting a round of monthly updates with the managers in his portfolio. The interesting question is, in select cases, how the FOHF manager utilizes this view or, in the majority of cases, why he does little to nothing with it.

There are a number of scenarios to consider.

The first is the FOHF manager who, as a ......................

To view our full article Click here

Today's Exclusives Today's Other Voices More Exclusives
Previous Opalesque Exclusives                                  
More Other Voices
Previous Other Voices                                               
Access Alternative Market Briefing

  • Top Forwarded
  • Top Tracked
  • Top Searched
  1. David Einhorn's hedge fund plunged 5.2% in November, set for 2015 loss[more]

    From Bloomberg.com: David Einhorn’s main hedge fund at Greenlight Capital fell 5.2 percent in November and is poised for only its second losing year in almost two decades. The losses bring the fund’s yearly drop to almost 21 percent, according to an e-mail sent to clients that was obtained by Bloomb

  2. Other Voices: Hedge fund marketing and the selling cycle[more]

    By Bruce Frumerman. How long is the selling cycle now? That’s a question my financial communications and sales marketing consulting firm has been asked on a regular basis by hedge fund firm owners and sales people, ever since we opened the doors to our firm in 1987 pre-crash. Wa

  3. People - Solus Alternative Asset Management adds chief strategist from BTIG[more]

    From PIonline.com: Daniel Greenhaus joined hedge fund manager Solus Alternative Asset Management as managing director and chief strategist. He will work closely with Chris Bondy, Solus’ chief economist, managing director and executive vice president, said Chris Pucillo, CEO and chief investmen

  4. Commodities - Stung by oil, distressed-debt traders see worst losses since '08[more]

    From Bloomberg.com: It’s mid-November, but for investors who trade in the debt of distressed companies, the year’s already done -- and they lost. Hedge funds that specialize in the debt are grappling with their worst declines in seven years. Funds managed by Knighthead Capital Management, Candlewood

  5. Regulatory - Major changes in partnership audit procedures contained in 2015 Budget Act[more]

    Contained in the Bipartisan Budget Act of 2015, signed by President Obama on November 2, is a rather complex provision that materially changes how partnerships are audited. Generally effective for tax years beginning after December 31, 2017, the so-called “TEFRA” and “Electing Large Partnership” rul