A natural step in the institutionalisation of the alternative investment industry, the emergence of hedge fund replication offers has been described as marking the birth of the “atomic age” of investing... To go beyond the marketing spin, a scientific assessment is called for: How do the various offers work? Can these clones deliver? What can alternative managers learn from replication technologies and how should they adapt to this brave new world? What are the merits and limits of replication products for end-investors?


Following recent endeavours by leading investment banks, there has been renewed interest in the financial industry concerning the subject of “passive hedge fund replication.” In a nutshell, these initiatives are meant to enable investors to achieve returns similar to those of hedge funds with significantly lower fees through investment in rules-based replication strategies involving liquid underlying assets. A typical hedge fund clone attempts to track the systematic factor exposure in hedge fund returns, i.e., their traditional and alternative beta components, as opposed to their more elusive alphas.

In a forthcoming survey entitled “The Myths and Limits of Passive Hedge Fund Replication”, the EDHEC Risk and Asset Management Research Centre provides a critical analysis of the various methodologies involved in the replication offers, examines the respective benefits and limits of the “factor-based“ and “payoff-distribution“ hedge fund replication approaches, presents independent tests of each technique’s ability to consistently deliver hedge-fund-like returns, and suggests new directions to improve hedge fund trackers.

Survey co-author and Scientific Director of the EDHEC Risk and Asset Management Research Centre, Professor Lionel Martellini will make an exclusive premiere presentation of the survey results and conclusions. Dr Martellini will introduce hedge fund cloning techniques, describe the tests used to evaluate in-sample and out-of-sample replication performance and present their results and discuss the future of alternative beta tracking with the audience.

Content:

• What are the objectives of hedge fund replication products?
• How to analyse the diversity of replication offers?
• What are the technologies underlying hedge fund clones?
• Can synthetic hedge fund products deliver?
• What is there to be learnt from replication techniques?
• Are hedge fund clones threatening alternative managers?
• What are the implications of hedge fund clones for end-investors?

Programme:

• 5:15
  Registration

• 5:30-7:00
  Presentation

  – The concept of “passive” replication of hedge funds and the tracking of betas
  – Factor-based models versus payoff distribution approach
  – Benefits and shortcomings of hedge fund clones
  – Robustness of hedge fund replication models
  – Technologies for the next generation of clones: non-linear and conditional factor models

• 7:00-7:30
  Questions and answers - frontiers in hedge fund replication

• 7:30-8:00
  Cocktail

Seminar Leader:

Lionel Martellini is Professor of Finance at EDHEC Business School and the Scientific Director of the EDHEC Risk and Asset Management Research Centre.

Recent centre outputs co-authored by Lionel Martellini include: The Myths and Limits of Passive Hedge Fund Replication, The Benefits of Hedge Funds in ALM, Investing in Hedge Funds: Adding Value through Active Style Allocation Decisions, and Hedge Fund Indices: Reconciling Investability and Representativity.

He has served as a consultant for various institutional investors, investments banks and asset management firms both in Europe and in the United States on questions related to risk management, alternative investment strategies, and asset allocation decisions in the absence and in the presence of liability constraints and performance benchmarks.

His research has been published in leading academic and practitioner journals including Management Science, The Review of Financial Studies, European Financial Management, Financial Analysts Journal, and Risk. He sits on the editorial board of the Journal of Portfolio Management and the Journal of Alternative Investments.

Lionel has co-authored and co-edited reference texts on fixed-income management and alternative investment and is regularly invited to deliver presentations at leading academic and industry conferences.

He holds graduate degrees in business administration, economics, statistics and mathematics, as well as a PhD in Finance from the Haas School of Business at UC Berkeley.

EDHEC's survey:
"The Myths and Limits of Passive Hedge Fund Replication":

Each participant will receive a printed copy of EDHEC’s forthcoming hedge fund replication survey by Noël Amenc, Walter Géhin, Lionel Martellini and Jean-Christophe Meyfredi.

The study may be purchased separately at a cost of €750 per copy.

Registration:

• Registration fees for the evening seminar and debate amount to €750 + VAT where applicable.

• Fees include a hard copy of the survey and refreshments.

Three easy ways to register:

• By phone: Mélanie Ruiz +33 (0) 493 187 819
• By e-mail: AMeducation@edhec-risk.com
• Online: http://store.edhec-risk.com

Venue:

Marriott Renaissance Chancery Court
252 High Holborn
WC1V 7EN
London