PT  - JOURNAL ARTICLE
AU  - Jean-François Bacmann
AU  - Ryan Held
AU  - Pierre Jeanneret
AU  - Stefan Scholz
TI  - Beyond Factor Decomposition
AID  - 10.3905/jai.2008.712599
DP  - 2008 Sep 30
TA  - The Journal of Alternative Investments
PG  - 84--93
VI  - 11
IP  - 2
4099  - https://pm-research.com/content/11/2/84.short
4100  - https://pm-research.com/content/11/2/84.full
AB  - Hedge fund replicators are investment vehicles that attempt to emulate hedge fund returns using a number of techniques. In this article, the authors shed some more light on the challenges and problems of the cloning process from a practical viewpoint. While various methodologies are available, the authors focus on factor modeling of hedge fund returns. The results show that, within this context, missing or mis-specified risk factors affect the performance of clones significantly. At the same time it might turn out to be very difficult to detect poorly defined settings of a clone in time (e.g. by looking at the explanatory power). The authors conclude that changing market conditions accompanied by dynamically changing risk factors cannot be captured accurately by such clones.TOPICS: Real assets/alternative investments/private equity, analysis of individual factors/risk premia, performance measurement