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What is Hedge Fund Replication mean?
Hedge fund replication is the collective name given to a number of different methods that attempt to replicate hedge fund returns. The hedge fund industry has boomed over recent years and various studies by investment banks as well as academic papers have shown that hedge funds may be nearing an alpha generating capacity constraint. This means hedge funds can no longer produce alpha in aggregate. Replication has been claimed to remove the illiquidity, transparency and fraud risk associated with direct investment in hedge funds. With the belief that the pursuit of alpha is a zero-sum game, more investors are looking to simply add "Hedge Fund Beta" to their portfolio. These early investors have been rewarded as the replicators outperformed their direct investment cousins in 2008 due to their greater liquidity and lower use of leverage.
Leading hedge fund industry professionals that study risk exposures, such as Israel Cohen and Lars Jaeger, contend that while most hedge fund claim a return of alpha, these claims are inaccurate. Cohen's research shows that any alpha generated by the average hedge fund is lost to an investor in the various layers of fees. In an Opalesque.TV video, Jaeger contends that hedge funds take systematic risk exposures to capital markets which lead to their premium, which he calls Alternative Beta.
referencePosted on 02 Nov 2024, this text provides information on Miscellaneous in Business related to Business. Please note that while accuracy is prioritized, the data presented might not be entirely correct or up-to-date. This information is offered for general knowledge and informational purposes only, and should not be considered as a substitute for professional advice.
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