In this recent article in Absolute Return, Andrew Beer shares his insights about the recent market volatility and its impact on hedge fund performance. In the conclusion, he offers a clear directive to allocators:
For investors in equity hedge funds, the recent poor performance raises a troubling question: if the hedges fail to work in down equity markets – precisely when they are most needed – then these funds have questionable value in a diversified portfolio. A key due diligence question is for allocators to precisely understand issues around trade crowding and, as importantly, factor tilts to be able to correctly anticipate how a given fund should perform in various market regimes. While some funds will be positioned to protect capital in a month like this, most will not – something allocators should make a due diligence priority.
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