The Assessment and Selection of Hedge Funds

Joaquín López Pascual. (2015).  Chapter 10. «The Assessment and Selection of Hedge Funds«, in Advanced Business Analytics. Ed. Springer, pp 195-210.

The following Chapter intends to be a small guide to investing in hedge funds or a guide to take into account when trying to understand the complexities of investing in hedge funds. We aim to give a general overview of the field of alternative investments and to introduce its complexities, because investing in hedge funds is not at all a very simple task.

In this Chapter, we assess the challenges of analysing and selecting hedge funds. Alternative investment vehicles have taken an important role not only in the diversification of portfolios but also as standalone investments. Capturing the entire risk dimensions implied in hedge fund investment strategies is paramount in understanding alternative investments. We also analyse the problem of the lack of benchmarks. Should the performance of a hedge fund follow a benchmark? As absolute return vehicles, alternative investment organizations should not be benchmarked. However, investors need to compare returns with other assets in order to properly assess the cost of opportunity implied in hedge fund investing. We consider also benchmarking among peers as a new and latest strategy.

http://link.springer.com/chapter/10.1007/978-3-319-11415-6_10

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