Abstract
As investors begin to adopt Active Alpha Investing, their demand for hedge funds is likely to increase. In order to fully embrace this style of investing, investors need a framework to analyze hedge fund risk and return. This article proposes such a framework. The framework identifies the impact of market returns versus active returns, the differences in active returns across hedge fund strategies, as well as the relative confidence that investors place in alternative strategies. Hedge funds will continue to play an important role in investor portfolios and this framework is designed to help investors isolate the key decisions that they must make.
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