The funds of hedge funds that are too hot to handle
Uncorrelated returns are what investors in funds of hedge funds are looking for. But is it what they are getting? Only 52% of institutional investors surveyed by Mercer Investment Consulting claimed to be satisfied with the low correlation of their funds of hedge funds with other asset classes in their portfolio. The correlation of monthly data between the S&P 500 and the HFRI fund of hedge funds composite index between January 2005 and August 2006 was 0.74.
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