What is the point of indices if hedge funds seek absolute returns?
While hedge fund managers often discard the use of an index with reference to their “absolute returns” approach, the gradual institutionalisation of alternative investments and growing demand from institutional investors have led to a need for information on the returns of hedge fund strategies. Hedge funds actually exploit the many dimensions of risk in financial markets in order to expand the risk-taking opportunities of investors to a large variety of risk factors and to non-linear exposure. Indices are a convenient way of assessing the risk/return characteristics of such vehicles.
Related Questions
- Are UCITS doomed to be the Cinderella sisters of hedge funds, with diluted returns and negative tracking error?
- Do hedge fund indexes overstate average returns because bad funds can drop out whenever they want to?
- Do leveraged and inverse funds seek to achieve their target returns for more than a day?
