Reconsidering Funds of Hedge Funds

The Financial Crisis and Best Practices in UCITS, Tail Risk, Performance, and Due Diligence

Edited by

  • Greg Gregoriou, School of Business and Economics, State University of New York, Plattsburgh, NY, USA

How will the funds of hedge funds (FoHF) business have to change to survive in the wake of the 2008-2012 financial crisis? This new research provides valuable insight. Reconsidering Funds of Hedge Funds presents the first comprehensive views of UCITS as well as recent trends in due diligence, risk management, and hedge fund deaths and survivors. The book contains original chapters by 22 academics and 16 hedge fund professionals, and includes two sections on performance: one that looks at UCITS FoHF and one that deals with traditional FoHF performance. Most chapters examine aspects of the 2008-2012 financial crisis, and almost every chapter addresses fund of hedge funds' management process before, during, and after the crisis.
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Audience

Upper-division undergraduates, graduate students, and professors studying financial risk management, investments, and investment market trends.  Financial industry professionals working on both the buy- and sell-sides of investment firms.

 

Book information

  • Published: January 2013
  • Imprint: ACADEMIC PRESS
  • ISBN: 978-0-12-401699-6

Reviews

"International contributors include 22 academics in finance, business, and research analysis, and 16 hedge fund professionals. They examine issues related to the institutional framework of a special type of FOHF called undertakings for collective investments in transferable securities (UCITS) FOHFs, which were developed in response to calls for operational due diligence and improved transparency in the financial industry."--Reference & Research Book News, December 2013
"Hedge funds are now more than ever in the focus of many public debates and they are discussed by academics and practitioners as well. So the time for treating the diverse aspects of hedge funds in a book could not even be better. The book at hand by Greg N. Gregoriou will surely be a very valuable and readable contribution in this context as it covers the complete, difficult matter in its manyfold chapters and through the high expertise of the authors." --Carsten S. Wehn, DekaBank, Germany:

"The 2007-9 Financial Markets Crisis also created a crisis for the fund of hedge funds industry.  After the Crisis, basics such as liquidity, transparency, alpha generation, and understanding business risks gained renewed importance.  Solutions to these criteria such as UCITS, managed accounts, and closer management of fund asset and liability risks became central to many fund of hedge funds.  Additionally, leading fund of hedge funds now focus less on 'one size fits all' solutions and more on bespoke client portfolio solutions.  The articles in Reconsidering Funds of Hedge Funds try to grapple with these industry changes and show a variety of different responses to the new environment.  Fund of hedge fund investors will find this book and important update on an industry in transition." --James Purnell, Kenmar, USA 

"We have witnessed tremendous growth in the intermediation in the hedge fund industry in the form of funds of hedge funds. However, there is still limited understanding about the risks and rewards as well as regulation of these intermediaries especially in light of the recent financial crisis. This book is a great collection of research articles that will improve the understanding of anyone interested in funds of hedge funds."--Vikas Agarwal, Georgia State University

"If your investment in fund of hedge funds suffered from the 2007-09 financial crisis, this book is the first to provide you with valuable insights into the measurement and effective management of various types of risk. It is the major resource for scholars and professionals interested in state-of-the-art approaches on operational due diligence and risk management."--Roland Füss, University of St.Gallen




Table of Contents

INTRODUCTION

Chapter 1 After the Crisis: The Withering of the Funds of Hedge Funds Business?
R. McFall Lamm, Jr.

Section 1: DUE DILIGENCE AND RISK MANAGEMENT

Chapter 2 Evaluating Trends in Fund of Hedge Fund Operational Due Diligence
Jason Scharfman

Chapter 3 The Limits of UCITS for Fund of Hedge Funds
Jeannine Daniel and François-Serge Lhabitant

Chapter 4 Due Diligence: Lessons from the Global Financial Crisis for Funds of Hedge Funds with Particular Emphasis on the Asia Pacific Region
David Edmund Allen, Staley Roy Alford (Roy) Pearce and Robert John Powell

Chapter 5  The Use of Managed Accounts by Fund of Hedge Funds
Marcus Müller and Daniel Dietrich

Chapter 6  Choice of Risk Measure in Evaluating UCITS Funds of Hedge Funds
Alessandro Carretta and Gianluca Mattarocci

Section 2: UCITS PERFORMANCE

Chapter 7  UCITS Funds of Hedge funds - The New Panacea?
Louis Zanolin

Chapter 8  The Return Potential of UCITS Fund of Hedge Funds: An Analysis of their Investment Universe
Marcus Storr, Thomas Maier, Florian Haberfelner and Iliya Kutsarov

Chapter 9  How Geography, Flows and Size Affects the Risk-Adjusted Performance of UCITS III Fund of Hedge Funds
Greg N. Gregoriou, Dieter Kaiser and Razvan Pascalau

Chapter 10  Funds of Hedge Funds vs. Do-It-Yourself Funds of UCITS
Samuel Sender

Section 3: PERFORMANCE

Chapter 11  Predicting Funds of Hedge Funds Attrition Through Performance Diagnostics
Philippe Cogneau, Philippe Debatty and Georges Hübner

Chapter 12  Does Fund of Hedge Fund Size Matter? Size vs. Performance Before, During and After the Crisis
Jeannine Daniel and François-Serge Lhabitant

Chapter 13  Normalized Risk-Adjusted Performance Measures Revisited: The Performance of FoHFs Before and After the Crisis
Laurent Bodson, Laurent Cavenaile and Alain Coën

Chapter 14  The Impact of the 2008 Financial Crisis on Fund of Hedge Funds
Na Dai and Hany A. Shawky

Chapter 15  Forecasting Funds of Hedge Funds Performance: A Markov Regime-Switching Approach
Szabolcs Blazsek

 Chapter 16  A Panel Based Quantile Regression Analysis of Funds of Hedge Funds
David Edmund Allen, Akhmad Kramadibrata, Robert John Powell and Abhay Kumar Singh

SECTION 4: FUND OF HEDGE FUND ALPHA

Chapter 17  Reward-to-Risk Ratios of Funds of Hedge Funds
Yigit Atilgan, Turan G. Bali and K. Ozgur Demitras

Chapter 18  The Short-Run Performance Persistence in Funds of Hedge Funds
David Ardia and Kris Boudt

Chapter 19  "Seeking Alpha": The Performance of Funds of Hedge Funds
Raphaële Chappe, Christian Proaño and Willi Semmler

Chapter 20  Quantitative Insight into Management of Funds of Hedge Funds and Consequences on Fund Alpha Performance Justina Dambrauskaite, H. Haidar, Bernard Minsky and Qi Tang

Chapter 21  Selecting Top Funds of Hedge Funds Based on Alpha and Other Performance Measures
Ying-Lin Hsu , Chung-Ming Kuan and Stéphane M. F. Yen

Chapter 22  Funds of Hedge Strategies and Implications for Asset Management: Is Diversification Enough?
Simone Siragusa

SECTION 5: TAIL RISK

Chapter 23  The Intertemporal Relation between Tail Risk and Fund of Hedge Fund Returns
Yigit Atilgan, Turan G. Bali and K. Ozgur Demirtas

Chapter 24  Tail Risk Protection for Funds of Hedge Funds
Oliver A. Schwindler

Chapter 25  Autocorrelation, Bias and Fat Tails: An Analysis of Funds of Hedge Funds
Martin Eling

Chapter 26  Crisis and Funds of Hedge Funds Tail Risk
Monica Billio, Kaleab Mamo and Loriana Pelizzon

Chapter 27  Funds of Hedge Funds, Efficient Portfolios, and Investor Clienteles: Empirical Evidence from Growth and Financial Crisis Periods 
Wolfgang Bessler and Philipp Kurmann

Section 6: REGULATION

Chapter 28  Regulation: Threat or Opportunity for the Fund of Hedge Fund Industry?
Serge Darolles and Mathieu Vaissie

Chapter 29  Funds of Hedge Funds and the Principles of Fiduciary Investing Following the Global Financial Crisis
Paul U. Ali

Chapter 30  Understanding the Regulation Impact: US Fund of Hedge Funds after the Crisis
David Edmund Allen, Robert John Powell and Abhay Kumar

Chapter 31  Canada and Australia: Do They Provide a Regulatory Model for Funds of Hedge Funds?
David Edmund Allen, Raymond Robert Boffey and Robert John Powell

Chapter 32  South African Regulatory Reforms of Fund of Hedge Funds
David Edmund Allen, Akhmad Kramadibrata, Robert John Powell and Abhay Kumar Singh