Hedge fund replication comes under fire
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"We’re trying to extract, systematically, existing alternative risk premium that exists in the global capital markets" |
Lars Jaeger, head of alternative beta strategies at investment company Partners Group, based in Baar-Zug, Switzerland, has taken a different approach to the banks and to Harry Kat when it comes to hedge fund replication. "We’re not starting from the concept of hedge fund replication," he says. "All the hedge fund replication models are replicating a specific time series, or a specific hedge fund return profile. We’re trying to extract, systematically, existing alternative risk premium that exists in the global capital markets." As with the factor-based models, the idea is to acknowledge that hedge funds specialize in gathering alternative types of market beta, but rather than try to replicate hedge fund index returns as such, Jaeger puts in place trading strategies that attempt to automatically harness alternative beta returns. This can be done through, for example, certain foreign exchange and credit carry trades, equity spread trades (such as small cap versus large cap, or value versus growth), volatility trades and so on.