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From Kirsten Bischoff, Opalesque New York: With the hedge fund industry facing the full throes of market illiquidity, jittery investors, and increased redemptions, Jordan Drachman, PhD, and a Director in Credit Suisse's Alternative Beta Strategies spoke to the attendees at the 2008 The Hedge Fund Replication & Alternative Beta Conference about the illiquidity buffer which replicators may provide fund-of-hedge funds when utilized as part of a cash management strategy.
Credit Suisse launched its first Alternative Index Replication (AIR) Strategy in March 2008 with two indices: Long/Short Equity and Inverse Long/Short Equity. The Indices are valued daily. The portfolios are constructed via a quantitative algorithm that analyzes hedge fund index returns through a three step process which includes: a base stage to identify broad equity themes, a style stage which identifies those returns attributed to dynamic style trades, and a rotation stage which identifies returns attributed to industry sector exposures.
The replicator `wrapper` strategy
Drachman explained how a hedge fund replicator can be utilized as a wrapper for a specific strategy focus. For example, with the L/S focused AIR a fund of funds manager may opt to place 75% of its long/short equity investments into hedge funds and 25% into a long/short hedge fund replicator. By maintaining a percentage of funds in the replicator, the manager is able to d...................... To view our full article Click here
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