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Alternative Hedge Fund Strategies
The oft-stated attraction of hedge funds is the opportunity to earn significant risk-adjusted returns (alpha) from skillful managers that are generally independent of returns from other asset classes. Our view is that identifying skillful managers in advance is a difficult process at best. And, in well-functioning markets the expected alpha of a manager is zero before costs. Many of the perceived benefits of hedge funds can be realized at significantly less cost by structuring a portfolio with exposures to independent sources of risk (beta) and avoiding the manager selection risk. To provide an alternative hedge fund strategy we have formed Coppice Asset Management, which is a joint venture with Larkspur Management Services. The Coppice approach is to construct a portfolio with exposure to several risks that have been shown to explain global returns and is highly correlated with the returns of widely followed hedge fund indices.
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