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Alternative Market Briefing

Study - Only 30% of institutional hedge fund portfolios beat the benchmark

Friday, May 27, 2016

Bailey McCann, Opalesque New York:

A new study from CEM Benchmarking, an independent provider of cost and performance analysis for pension funds, shows that only 30 percent of institutional investors hedge fund portfolios beat the benchmark after fees. The study provides in depth analysis of realized hedge fund portfolio returns of over 300 large global investors, half of whom have long 5+ year histories investing with hedge funds.

"The reality is most hedge fund portfolios behaved like simple blends of equity and debt with unattractive returns and no risk-reducing characteristics," contend report authors Mike Heale, Principal & Alexander D. Beath, PhD.

According to the report, institutional investors like pension funds, first start investing in hedge funds because they are interested in the enhanced returns hedge funds purport to generate. The study shows that where many funds are promised superior uncorrelated returns, they actually receive neither. The average correlation to simple stock/bond portfolios was 84 percent, and for over half of funds correlations exceeded 90 percent. These results would not be disappointing except for the fact that 70 percent of funds underperformed the simple benchmarks, and the average fund underperformed by -1.88 percent.

"I think the most surprising part of the study is just how much of the return of hedge funds can be replicated by simply holding a 50/50 stock/bond portfolio" continued Beath.

T......................

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