Podcast Center
Video Center
Webcasts
Resource Center
Events
August 12, 2002 at 08:00 PM
WASHINGTON (HedgeWorld.com)–A recent study done by Carlyle Asset Management Group’s Jimmy Liew shows that passive hedge fund investing might provide returns but may yield too much exposure to unskilled hedge fund managers.
The paper, “Hedge Fund Index Investing Examined,” concluded that only 30% of managers can demonstrate statistically significant skill and that if a fund of funds can construct a portfolio with 70% “good” hedge fund investments the fund of funds managers can justify the incentive fees charged to investors.
Mr. Liew demonstrated, through a series of sample portfolios, that by putting money in an index portfolio, investors take on the risk of investing with managers with little or no skill. The expected benefits of increased diversification don’t seem to help, either. According to the study, those benefits quickly disappear under extreme market conditions, regardless of the nature of the index’s construction, equal or asset weighted.
Looking at the range of performance for three different manager groups, it was found that long/short equity managers had the biggest range of returns vs. the returns over the same time period of fixed-income and traditional equity managers. And it wasn’t just that there were more long/short equity managers in the sample. The research included 58 fixed-income managers, 64 equity managers and 38 long/short managers. The performance range between the top performing managers and the bottom decile performers was the greatest among long/short managers at 12.9%. At the same time, the performance range for fixed-income and equity managers was 0.98% and 6.16%, respectively.
