PT  - JOURNAL ARTICLE
AU  - Stan E Beckers
AU  - Ross Curds
AU  - Simon Weinberger
TI  - Funds of Hedge Funds Take the Wrong Risks
AID  - 10.3905/jpm.2007.684758
DP  - 2007 Apr 30
TA  - The Journal of Portfolio Management
PG  - 108--121
VI  - 33
IP  - 3
4099  - https://pm-research.com/content/33/3/108.short
4100  - https://pm-research.com/content/33/3/108.full
AB  - On average the fund of hedge funds industry over the last 15 years has delivered alpha with a high information ratio. Unfortunately, these alphas come with significant common-factor exposures for which the typical fund was unrewarded. While funds of hedge funds can deliver a valuable product, sloppy manager selection and portfolio construction typically result in less-than-pure alpha generation. A naive selection of a fund of hedge funds may thus lead to assuming relatively expensive common-factor exposure without necessarily accessing significant skill-based returns. A multifactor modeling of fund of hedge fund returns can help to identify skillful value-added.TOPICS: Real assets/alternative investments/private equity, portfolio construction