The right attitude to hedge funds

An update on managing risk in absolute return portfolios.

Any new investment for inclusion in a portfolio must offer an attractive, yet different, risk and reward profile compared to other asset classes. If not, adding it will produce little value. If hedge funds are included in an investment portfolio along with equities, bonds or other investments, they must not be viewed in isolation. Attention must be paid to how they interact with those other asset classes and whether their inclusion helps to meet its overall investment objectives. In broad terms, it is assumed that investors do not consider taking on an additional unit of risk unless it is accompanied by more than one unit of compensation. Investors want efficient investments that can generate the...

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