VANCOUVER, British Columbia (HedgeWorld.com)–Hedge fund risks are usually misperceived as greater than they are, according to a paper by Peter Klein and Todd Brulhart, respectively a portfolio manager and an analyst for KCS Fund Strategies, Inc.

They argue that an investment in an individual hedge fund is analogous to an investment in an individual common stock: risks in each case are typically diversified away within a broader portfolio. The authors compare indexes and show that investing in a well-diversified hedge fund index has historically been less risky that investing in popular North American equity indexes.

Their paper, “Are Extreme Hedge Fund Returns Problematic?” has won the 2005 Alternative Investment Management Association (AIMA?? 1/2 Canada) Research Award. A summary appears in the summer 2005 issue of Canadian Investment Review.

KCS, a management company that provides accredited individuals and institutions in Canada with either conservative fund of funds or customized segregated hedge fund portfolios, issued a statement congratulating the authors. Their work, it said, highlights the industry-leading, proprietary research that KCS applies to risk analysis in its managerial capacity.

In addition to his role at KCS, Mr. Klein is associate professor of finance at Simon Fraser University, Burnaby, BC.

A year and a half ago, Mr. Klein made a splash with a quite different paper, one on corporate governance, in which he and his co-author, Daniel Shapiro, reached the counterintuitive conclusion that the number of outside directors on the board of a family company is negatively correlated to stock value.