Research Insights

Original Research

Hedge Fund Reality Check 2018

Mike Heale, Alexander D. Beath

May 2018

Pension funds need investment strategies with attractive risk and return characteristics to fund their liabilities. Hedge funds are increasingly popular investments which purport to fill this need, as witnessed by a 25-fold increase in hedge fund use in the CEM global database between 2000 and 2016. But have hedge fund portfolios delivered these benefits? New CEM research indicates that some did but most did not.

The reality is most hedge fund portfolios behaved like simple blends of equity and debt with unattractive returns and no risk-reducing characteristics. The primary objective of the research was to better understand how funds are investing in hedge funds by examining their portfolio structure, benchmarks, performance and costs. Results are based on a one-time survey completed by 27 leading global funds, and 17 years of CEM hedge fund data from 382 funds.

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