Wed, Jan 18, 2017
A A A
Welcome Guest
Free Trial RSS
Get FREE trial access to our award winning publications
Industry Updates

GFIA white paper: Investing in hedge funds based on their historic Sharpe ratios is likely to disappoint

Friday, October 23, 2009
Investing in hedge funds based on their historic Sharpe ratios is likely to disappoint GFIA pte ltd, the Singapore based specialist in skill-based managers in Asian and emerging markets, has released a research paper examining the persistence of the Sharpe ratio, a commonly used measure of risk-adjusted return investors, and therefore its effectiveness as an substantive decision making tool.

In this paper, GFIA looks at the persistency of the commonly-used ratio, both at the level of the Asian hedge fund industry overall, and at the strategy level for the five biggest strategy groups.

GFIA also notes that the appropriateness of the Sharpe ratio in the context of hedge funds is questionable, given their typically non-normal return distribution.

- There is no consistency in the strategy mix of the best (worst) performing funds, over different time periods

- Top (worst) performing funds were seldom best (worst) performing in the subsequent period

- No more than 50% of funds in one performance category remained in the same category the subsequent year.

- Macro/ multi-strategy funds showed least persistence in Sharpe ratios over different time periods

Peter Douglas CAIA, FICP, principal of GFIA, commented: “We’ve always been sceptical of Sharpe ratios applied to hedge fund returns, but this research suggest that not only is the ratio academically inappropriate for measuring asymmetric return patterns, but it has almost no predictive power anyway! Allocators clearly should not rely on historic Sharpe ratios as a decision tool in constructing portfolios of Asian hedge funds.”

The white paper is available at www.gfia.com.sg.

What do you think?

   Use "anonymous" as my name    |   Alert me via email on new comments   |   
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. Southpoint Capital gains 3.8% in Q3, bringing year-to-date returns to 5.2%[more]

    From Valuewalk.com: Southpoint Capital Advisors, the $3 billion New York hedge fund founded by former employees of David Einhorn’s Greenlight Capital, added 3.8% net during the third quarter of 2016, bringing year-to-date returns to 5.2% and cumulative returns since inception (July 2004) of 237.4% a

  2. The Big Picture: The case for emerging market debt in 2017[more]

    Benedicte Gravrand, Opalesque Geneva: Emerging market (EM) assets outperformed in 2016 mainly because of stronger fundamentals and an improving international environment, with GDP picking up speed, leading to positive earnings revisions for the first time in five years,

  3. Short Selling - Long-short hedge funds are ditching the shorts to focus on longs[more]

    From Bloomberg.com: What happens when you take the "short" out of a long-short trading strategy? Some hedge funds are about to find out. Equity long-short fund managers, the biggest category in hedge funds, hold the fewest bearish stock bets on record, data compiled by Credit Suisse Group AG s

  4. SWFs - China sovereign wealth fund CIC plans more U.S. investments[more]

    From Reuters.com: China Investment Corporation (CIC), the country's sovereign wealth fund, is looking to raise alternative investments in the United States due to low returns in public markets, its chairman said on Monday. CIC will boost its investments in private equity and hedge funds as wel

  5. Some hedge funds strong start in 2017 nice contrast to 2016[more]

    With the 2016 HSBC Hedge Weekly performance rankings in the books - a year in which the same leader-board entries pretty much dominated unchallenged throughout the year - comes a new leader board that is a hard-scrabble mix of hedge fund styles and categories. What is clear after but a few short wee