Commonfund announced the release of the white paper, \u201cHedge Funds as Diversifiers in Institutional\u00a0Portfolios\u201d authored by members of its Hedge Fund Strategies Group, Kristofer Kwait, Managing Director, Head of Hedge Fund Research,\u00a0 John\u00a0Delano, Director, and Justin Santana, Director.<\/p>\n
While investors allocate to hedge funds for a\u00a0wide array of reasons, one of the primary roles\u00a0of hedge funds is to diversify broad market risk.\u00a0The authors explore four key factors driving the\u00a0compelling value that hedge funds continue to offer institutional investors.<\/p>\n
1.\u00a0 \u00a0 \u00a0 Hedge funds are not a monolithic entity,\u00a0nor a single and uniform investment class. They\u00a0are highly diverse both among and within strategies.<\/p>\n
2.\u00a0 \u00a0 \u00a0 The growth of the hedge fund industry has\u00a0led to an increased number of correlated
\nmanagers, but it has also led to an increased\u00a0number of uncorrelated managers. In fact, the\u00a0single largest area of growth over time has been\u00a0in the group of managers with the lowest\u00a0percentage of their returns explained by those of\u00a0the broad equity market. For a thoughtful,\u00a0strategic investor, this diversity can provide\u00a0the opportunity to attain portfolio\u00a0diversification independent of market direction.
\n3.\u00a0 \u00a0 \u00a0 Hedge funds provide significant alpha.\u00a0The long-term, alpha-based case for hedge funds\u00a0remains strong, despite recent declines in alpha\u00a0coinciding with unusually adverse market\u00a0conditions for security selection generally.\u00a0* Although alpha is getting harder to find at\u00a0the broad industry level, the best hedge funds\u00a0still produce a substantial amount of alpha \u2013 manager selection is critical.<\/p>\n
4.\u00a0 \u00a0 \u00a0 In addition to significant alpha, hedge\u00a0funds also offer a diverse array of systematic or market exposures.<\/p>\n