Integrating Hedge Fund Strategies in Sovereign Wealth Portfolios

Abstract:     
Sovereign Wealth Funds (SWFs‖) differ in many ways from other institutional investors in their investment activities. They have different objectives, investment processes, time horizons, risk profiles, utility preferences as well as eligible instruments. One of the more recent debates within these funds revolves around considerations involving investing in hedge funds. Integrating hedge funds into portfolios has been difficult to do in a rigorous manner because the asset allocation technology that is available to many investors is ill equipped to handle the complexities that this asset class presents. Traditional approaches to asset allocation, portfolio construction, risk management and investor governance are quite inadequate for this task. This paper highlights issues that are specific to hedge fund investing and suggests new approaches to portfolio management.

Keywords: Hedge Funds, Sovereign Wealth Funds, SWF

working papers series