The Hedge Fund Explosion: Is the Bang Worth the Buck?

Any casual following of the financial news would reveal that hedge funds have experienced phenomenal growth, especially over the last fifteen years. In terms of numbers, there were an estimated 8000 hedge funds in 2005, up from only 500 in 1990. During this fifteen-year period assets under management have grown from an estimated $50 billion to$1.5 trillion. Moreover, the hedgefund industry has spawned a “fund of funds” business, which has slowly become the preferred way of investing in hedge funds, especially for institutional investors. Today, the number of these combination funds is estimated at about 4000. Until recently, hedge funds have been popular primarily with high-net-worth individuals. While this is true even today (individual investors make up more than half of all hedge-fund shareholders), an increasingly larger proportion of hedge-fund investors are pensions, retirement plans, endowments, and corporations. As further evidence of the growth of hedge-fund popularity, Exhibit 2 reveals that the largest pension plans doubled their stake in alternatives, including hedge funds, over a ten-year period between 1995 and 2005. As a specific example, the March 22, 2006 issue of the Boston Globe reported that hedge funds account for 5 percent of total assets of the $40 billion of the Massachusetts Pension Reserves Investment Trust. The pension fund\u27s board plans to increase that share to 10 percent by the end of this year

A Survey of Demographics and Performance in the Hedge Fund Industry

We investigate hedge fund demographics using data from the Alternative Asset Center (AAC) and then hedge fund performance over the twelve years since inception of the Credit Suisse/Tremont Hedge Fund Indices (HFI, 1994-2005). We find that hedge funds are largely domiciled “offshore” while hedge-fund managers are located primarily in the United States, particularly New York, California, Illinois, Connecticut and Florida. We find that the annualized performance of hedge funds as an “asset class” is about the same as that of U.S. equities (S&P 500). That being said, the real benefit of hedge funds lies in risk management as the volatility of HFI is considerably lower than the stock market. We also find that most hedge-fund “styles” provide solid absolute and risk-adjusted returns and conclude that hedge funds have been a worthwhile investment vehicle for fund indexers and active investors

ADR Characteristics and Performance in International and Global Indexes

This study looks at the characteristics and performance of ADRs in international and global indexes. We find that ADRs in EAFE are tilted toward three common factors: giant cap, high dividend yield, and U.K. stocks. In terms of risk-adjusted performance, we find that ADRs provide inefficient diversification for US investors, as tradeoffs of return and risk are better with portfolio combinations of the S&P500 and the S&P Global 700, as compared with portfolio combinations of the S&P500 and an ADR breakout of the Global 700. Our findings on ADR characteristics are consistent with prior research, while our performance findings are inconsistent with prior research which points to ADR portfolio efficiency

A Survey of Demographics and Performance in the Hedge Fund Industry

We investigate hedge fund demographics using data from the Alternative Asset Center (AAC) and then hedge fund performance over the twelve years since inception of the Credit Suisse/Tremont Hedge Fund Indices (HFI, 1994-2005). We find that hedge funds are largely domiciled “offshore” while hedge-fund managers are located primarily in the United States, particularly New York, California, Illinois, Connecticut and Florida. We find that the annualized performance of hedge funds as an “asset class” is about the same as that of U.S. equities (S&P 500). That being said, the real benefit of hedge funds lies in risk management as the volatility of HFI is considerably lower than the stock market. We also find that most hedge-fund “styles” provide solid absolute and risk-adjusted returns and conclude that hedge funds have been a worthwhile investment vehicle for fund indexers and active investors

A Survey of Demographics and Performance in the Hedge Fund Industry

We investigate hedge fund demographics using data from the Alternative Asset Center (AAC) and then hedge fund performance over the twelve years since inception of the Credit Suisse/Tremont Hedge Fund Indices (HFI, 1994-2005). We find that hedge funds are largely domiciled “offshore” while hedge-fund managers are located primarily in the United States, particularly New York, California, Illinois, Connecticut and Florida. We find that the annualized performance of hedge funds as an “asset class” is about the same as that of U.S. equities (S&P 500). That being said, the real benefit of hedge funds lies in risk management as the volatility of HFI is considerably lower than the stock market. We also find that most hedge-fund “styles” provide solid absolute and risk-adjusted returns and conclude that hedge funds have been a worthwhile investment vehicle for fund indexers and active investors

The Hedge Fund Explosion: Is the Bang Worth the Buck?

Any casual following of the financial news would reveal that hedge funds have experienced phenomenal growth, especially over the last fifteen years. In terms of numbers, there were an estimated 8000 hedge funds in 2005, up from only 500 in 1990. During this fifteen-year period assets under management have grown from an estimated $50 billion to$1.5 trillion. Moreover, the hedgefund industry has spawned a “fund of funds” business, which has slowly become the preferred way of investing in hedge funds, especially for institutional investors. Today, the number of these combination funds is estimated at about 4000. Until recently, hedge funds have been popular primarily with high-net-worth individuals. While this is true even today (individual investors make up more than half of all hedge-fund shareholders), an increasingly larger proportion of hedge-fund investors are pensions, retirement plans, endowments, and corporations. As further evidence of the growth of hedge-fund popularity, Exhibit 2 reveals that the largest pension plans doubled their stake in alternatives, including hedge funds, over a ten-year period between 1995 and 2005. As a specific example, the March 22, 2006 issue of the Boston Globe reported that hedge funds account for 5 percent of total assets of the $40 billion of the Massachusetts Pension Reserves Investment Trust. The pension fund\u27s board plans to increase that share to 10 percent by the end of this year

The Hedge Fund Explosion: Is the Bang Worth the Buck?

Any casual following of the financial news would reveal that hedge funds have experienced phenomenal growth, especially over the last fifteen years. In terms of numbers, there were an estimated 8000 hedge funds in 2005, up from only 500 in 1990. During this fifteen-year period assets under management have grown from an estimated $50 billion to$1.5 trillion. Moreover, the hedgefund industry has spawned a “fund of funds” business, which has slowly become the preferred way of investing in hedge funds, especially for institutional investors. Today, the number of these combination funds is estimated at about 4000. Until recently, hedge funds have been popular primarily with high-net-worth individuals. While this is true even today (individual investors make up more than half of all hedge-fund shareholders), an increasingly larger proportion of hedge-fund investors are pensions, retirement plans, endowments, and corporations. As further evidence of the growth of hedge-fund popularity, Exhibit 2 reveals that the largest pension plans doubled their stake in alternatives, including hedge funds, over a ten-year period between 1995 and 2005. As a specific example, the March 22, 2006 issue of the Boston Globe reported that hedge funds account for 5 percent of total assets of the $40 billion of the Massachusetts Pension Reserves Investment Trust. The pension fund\u27s board plans to increase that share to 10 percent by the end of this year