The Alternative Investment Management Association (AIMA) has published a new educational guide to understanding hedge fund performance.
The guide, Apples and apples: How to better understand hedge fund performance, says comparing hedge fund performance to the S&P 500 can be an “apples and oranges” comparison.
It proposes five steps to improve understanding of hedge fund performance:
- look at risk-adjusted returns;
- look at long-term data;
- look at the returns by strategy;
- compare with the most relevant asset class; and
- be aware of differences between hedge fund indexes.
“It is striking that recent surveys have highlighted high levels of investor satisfaction in hedge funds at a time when many commentators have claimed that the industry is being outperformed by the market,” says AIMA’s CEO, Jack Inglis.
“The reason for this is that investors are not allocating to hedge funds to beat the S&P 500 but to allow them to meet their asset-liability management objectives in terms of risk-adjusted returns, diversification, lower correlations, lower volatility and downside protection.”
The guide is available on AIMA’s website.
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