Archive for March, 2010

Hedge Fund Databases: Sample Selection Bias

In addition to self-selection bias, hedge fund databases can be prone to sample selection biases.

Most databases only include funds that meet certain criteria (size, track record, etc.) Very poor managers will not survive long enough to be tracked.

Furthermore, some databases include funds of funds or managed futures, while others do not. This effects comparability across databases.

Posted on 22nd March 2010
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Risk Transparency versus Position Transparency

A previous article noted that hedge funds tend to be fairly secretive, and discussed some of the reasons for that.  However, both investor pressure and the threat of regulation have led hedge funds to be somewhat more transparent over time, even if only selectively so.

One way for funds to be more transparent is to disclose risk factors rather than specific positions. Thus, the hedge fund could say they have exposure to equities, interest rates, volatility, or other factors without noting specific positions. Investors are able to learn important information about their investments, including what types of risk they may need to diversify or hedge, but competitors do not get information they could use to either piggy-back or front-run the hedge fund.

Posted on 12th March 2010
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What is an Absolute Return Benchmark?

A target rate of return that is not based on market returns. It could be a specific return, such as 10%, as opposed to exceeding the return on the S&P 500.

Posted on 3rd March 2010
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