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Replication and Evaluation of Fund of Hedge Funds Returns

Harry M. Kat

Helder P. Palaro

January 3, 2006

Alternative Investment Research Centre Working Paper No. 28
Cass Business School Research Paper

Abstract:
In this paper we use the hedge fund return replication technique recently introduced in Kat and Palaro (2005) to evaluate the net-of-fee performance of 485 funds of hedge funds. The results indicate that the majority of funds of funds have not provided their investors with returns, which they could not have generated themselves by trading S&P 500, T-bond and Eurodollar futures. Purely in terms of returns therefore, most funds of hedge funds have failed to add value.

Keywords: Hedge funds, fund of funds, return replication, performance evaluation, copula, alpha

JEL Classifications: G11, G23

Working Paper Series

Date posted: January 03, 2006 ; Last revised: February 23, 2006

Suggested Citation

Kat, Harry M. and Palaro, Helder P., Replication and Evaluation of Fund of Hedge Funds Returns (January 3, 2006). Alternative Investment Research Centre Working Paper No. 28; Cass Business School Research Paper. Available at SSRN: http://ssrn.com/abstract=873465

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