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The Pros and Cons of Passive Hedge Fund Replication
A number of major investment banks and asset management consultants have recently launched investment products that promise to replicate hedge fund returns by following rule-based strategies that invest in liquid financial products.
Author(s):
, Professor of Finance and Director of Research and Developmentat EDHEC Business School.
Management Research Centre.
The argument is that such products provide hedge fundlike returns while making it possible to avoid paying the high fees charged by hedge funds. In a recent publication, the EDHEC Risk and Asset Management Research Centre analyses the replicating performance of the two main approaches to hedge fund replication (Amenc et al. 2007). It concludes that, although hedge fund replication is theoretically appealing, it does not, in practice, deliver satisfactory results. Following the study, EDHEC called for practitioner views on replication products. We find that very few of the asset managers who respond to our survey have invested in such products. Many investors are critical of passive hedge fund replication and have doubts about its potential benefits.
| Type: | EDHEC Publication |
|---|---|
| Date: | le 06/10/2008 |
| Research Cluster : | Finance |
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Operating from campuses in Lille, Nice, Paris, London and Singapore, EDHEC is one of the top 15 European business schools. Fully international and directly connected to the business world, EDHEC is a school for business, rather than a business school, where excellence in teaching and research focuses on innovation to stimulate entrepreneurship and creativity. EDHEC functions as a genuine laboratory of ideas and produces innovative solutions valued by businesses. The School’s teaching philosophy, inspired by its award-winning research activities, focuses on “learning by doing”.
