HFs Not Threatened By Clones

02-20-2008 | Source: Hedge Fund Daily

Hedge fund replicators for the most part are seen as complementing the real thing, not replacing it. According to a survey by AllAboutAlpha and Terrapin, that was the view held by more than 70% funds of hedge funds and long-only managers, while slightly more than half of consultants surveyed saw them as less complementary and 60% of hedge funds viewed them as competitive. The survey found that respondents overall considered alternative beta and hedge fund clones mostly as a tool for creating new product, while progressively smaller percentages valued them as a benchmark, a way for managing cash, for asset allocation, and for setting hurdle rates. In other findings:

• End investors were more likely than consultants to believe that hedge funds returns are mostly the result of skill, while consultants strongly disagreed.
• Nearly 75% of end investors say they are familiar with HF replicators, though only 7% currently invest in them and one-third say they plan to invest in them by the beginning of next year.
• More than half of end investors say liquidity is the most attractive aspect of HF clones, a portion that drops to about one-third of asset managers.
• 13% of respondents say they don’t believe hedge fund returns can be replicated.

“What emerges from the survey,” says SeekingAlpha, “is a chaotic and sometimes counter-intuitive picture with only modest consensus on the question of whether hedge fund replication represents a threat or a way forward for the industry.”