The COVID-19 pandemic has swept the globe leaving no asset class unaffected. Dispersion across hedge funds has been pronounced, so while the paper used data prior to the recent market turmoil, the philosophical tenets of fund selection and portfolio construction remain pertinent and are reinforced by current market conditions.
While public markets (e.g. equities and bonds) remain a cornerstone of investment portfolios, investors have long sought to diversify beyond these exposures. Hedge funds have been one means of diversifying and accessing alternative return drivers. There is a wide range of investment strategies within the hedge fund universe resulting in significant dispersion of investment performance. Nonetheless, analysis of historical return patterns can provide some insight into the potential benefits of hedge funds and their uses.
This paper reviews the characteristics of a broad universe of hedge funds, hedge fund subcategories, return patterns, and some considerations for portfolio construction.