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The Journal of Portfolio Management

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Primary Article

Funds of Hedge Funds Take the Wrong Risks

Stan E Beckers, Ross Curds and Simon Weinberger
The Journal of Portfolio Management Spring 2007, 33 (3) 108-121; DOI: https://doi.org/10.3905/jpm.2007.684758
Stan E Beckers
The head of the Alpha Management Group at Barclays Global Investors in London.
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  • For correspondence: stan.beckers@barclaysglobal.com
Ross Curds
A research officer at Barclays Global Investors in London.
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  • For correspondence: ross.curds@barclaysglobal.com
Simon Weinberger
A research officer at Barclays Global Investors in London.
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  • For correspondence: simon.weinberger@barclaysglobal.com
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Abstract

On average the fund of hedge funds industry over the last 15 years has delivered alpha with a high information ratio. Unfortunately, these alphas come with significant common-factor exposures for which the typical fund was unrewarded. While funds of hedge funds can deliver a valuable product, sloppy manager selection and portfolio construction typically result in less-than-pure alpha generation. A naive selection of a fund of hedge funds may thus lead to assuming relatively expensive common-factor exposure without necessarily accessing significant skill-based returns. A multifactor modeling of fund of hedge fund returns can help to identify skillful value-added.

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The Journal of Portfolio Management
Vol. 33, Issue 3
Spring 2007
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Funds of Hedge Funds Take the Wrong Risks
Stan E Beckers, Ross Curds, Simon Weinberger
The Journal of Portfolio Management Apr 2007, 33 (3) 108-121; DOI: 10.3905/jpm.2007.684758

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Funds of Hedge Funds Take the Wrong Risks
Stan E Beckers, Ross Curds, Simon Weinberger
The Journal of Portfolio Management Apr 2007, 33 (3) 108-121; DOI: 10.3905/jpm.2007.684758
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