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Monday, May 25, 2020

EDHEC survey finds finance professionals unconvinced by hedge fund replication products

Date: Tuesday, November 25, 2008
Author: EDHEC

Following a major position paper last year on the subject of hedge fund replication, entitled “The Myths and Limits of Passive Hedge Fund Replication: An Attractive Concept… Still a Work-in- Progress,” EDHEC wished to compare the results of the analysis of hedge fund replication by EDHEC’s researchers with industry perceptions of the products and techniques that are currently available. For an idea of what practitioners really think about the strengths and weaknesses of hedge fund replication products, and—most important—whether they actually use them, the EDHEC Risk and Asset Management Research Centre called for reactions to its study.

The questions were sent to asset management firms and pension funds, as well as to private bankers and related institutions that are interested in optimal asset management strategies. Most of the 97 respondents to the call for reactions are based in Europe. The survey period was from 22/01/2008 to 21/04/2008. Among the salient findings:

  • Although asset managers agree on the two main advantages of hedge fund replication—high liquidity at rather low cost—criticism outweighs praise.
  • Many investors believe that the behaviour of hedge fund managers is not replicable as such, and consequently that any replication product is unlikely to replicate any managerial skill.
  • Managers criticise the poor performance, the lack of transparency, and the deficient technology of the replication products on offer.
  • Not surprisingly, only 15% of the respondents have invested in replication products. 30% report that they will never do so.
  • For the time being, the respondents prefer actual hedge funds or other substitutes for hedge funds to passive replication products.

The full call for reactions can be accessed at: