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Alternative Market Briefing

Misconceptions about hedge fund replication, Part 3

Monday, December 16, 2013

Lars Jaeger
Benedicte Gravrand, Opalesque Geneva:

Lars Jaeger, a well-known expert on alternative beta, talks to Opalesque about the common misconceptions about hedge fund replication from a provider’s angle.

In Part 1, Andrew Beer of Beachhead gave his perspective and so did Adam Patti of IndexIQ in Part 2 of this article.

A bottom-up approach Lars Jaeger, founder and CEO of Alternative Beta Partners AG, a Swiss-based investment manager specializing in alternative beta and insurance linked securities, thinks the initial way hedge fund replication was done was flawed.

"Hedge fund replication has been for most offerings based upon the replication of a specific index or a specific time series through statistical means," he tells Opalesque. "Let’s say you take the Hedge Fund Research database or an index, you apply certain statistical methods, specifically linear regression models, and then you invest into those factors as they come out of the regression. That was developed by a few providers, specifically investment banks, and they coined this 'hedge fund replication,’ which is really replication of a hed......................

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