Archive for October, 2010

Benchmark related statistics used to evaluate hedge funds

Capture ratio is the average of the captured performance (difference between fund’s returns and benchmark’s returns)

Up capture indicator is fund’s average return divided by benchmark average return, considering only periods when benchmark was up. Bigger is better.

Down capture indicator is fund average/benchmark average considering only periods when benchmark was down. Smaller is better.

Up number ratio is number of periods fund and benchmark were up, divided by number of periods benchmark were up. Bigger is better.

Down number ratio is number of periods fund and benchmark were down, divided by number of periods benchmark was down. Smaller is better.

Up percentage ratio is the percentage of periods the fund outperformed when the benchmark was up. Bigger is better.

Down percentage ratio is the percentage of periods the fund outperformed when benchmark was down. Bigger is better.

Percent gain ratio is number of fund up periods over number of benchmark up periods. Bigger is better.

Ratio of negative months over total months is a good downside risk indicator but ignores absolute size of positive and negative returns.

Posted on 12th October 2010
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What is the Difference Between a Fund of Funds and a Multi-Strategy Fund?

A fund of funds allocates funds to a variety of hedge fund managers to gain diversification. Multi-strategy funds typically implement a dynamic strategy allocation as market conditions change.

Posted on 3rd October 2010
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