Benchmarking Issues for Hedge Funds

Finding a benchmark for hedge funds can be complicated when the hedge fund uses short selling as part of its strategy. In the extreme case of a perfectly market-neutral portfolio (100% long/short matching) there would be no starting portfolio value, and the return in any period would be either positive or negative infinity.  Even when there are small directional exposures, the resulting return measure could be significantly distorted.

Benchmarks for such funds should also be market-neutral long-short portfolios, which would allow the portfolio’s return to be measured against the benchmark.

For more information, see all articles on: Active Management, Hedge Funds, Investment Returns, Performance Measurement, Portfolio Management

See also:
  • Determinants of Funds of Hedge Funds Performance
  • Risk Transparency versus Position Transparency
  • Are Hedge Fund Strategies Just About Leverage?
  • Do Market Timing Hedge Funds Time the Market?
  • The Structure of Hedge Funds
  • Technical Analysis Explained : The Successful Investor's Guide to Spotting Investment Trends and Turning Points

    The Intelligent Investor: The Classic Text on Value Investing

    Financial Statement Analysis: A Practitioner's Guide, 3rd Edition

    Managing Investment Portfolios: A Dynamic Process (CFA Institute Investment Series)

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