The Financial Standard – Hedge funds and their returns should not be a mystery, according to fund of hedge funds (FOHF) specialist Permal Group, even if the hedge fund moniker is now so widely bandied around it is next to useless.
“Saying something is a ‘hedge fund’ without an adjective before it is meaningless,†said Isaac Souede, director of Permal Group and chairman and chief executive officer of New York based Permal Asset Management. “It’s now a catch-all that means nothing. You’d be foolish to think you get [a hedge fund] unless you dig down.â€Â
It was also pointless, Souede said, to consider hedge funds as a group. The dispersion between the top and bottom end of hedge fund performance was huge, he said, much more so than is the case for conventional equities managers.
“About 5–10 per cent of long-only managers create value beyond index returns. The same is true for hedge fund managers, [however] dispersion between good and bad hedge funds is massive,†Souede explained. “You can’t really use indexes, even hedge fund indexes … you have to work on expected returns.â€Â
For this reason a FOHF could not rely on simply taking a broad sweep of managers – it needed to drill down into their risk and return structures to see whether they really were offering value, and how. And it is quantifiable, with the right tools, Souede said.
