Fund Of Funds Risk Assessment
Inheriting all valuation problems of individual funds, portfolios of hedge funds (Hedge Fund of Funds - HFoF) are prone to additional issues. First, HFoFs tend to exhibit higher negative skewness and kurtosis than individual hedge funds. Therefore, the inappropriateness of the mean-variance theory that assumes a normal distribution, applies to HFoF to a higher extent. Second, the diversification of portfolio constituents leads to a higher portfolio correlation with major markets than that of individual funds. Third, high cross-correlations across underlying funds and indices make portfolio factor analysis more difficult - often classic regression models do not work and more advanced techniques should be applied.
Hedge Fund Of Funds Valuation Challenges
- A greater degree of non-normality of return distributions than individual funds
- High correlation with indices
- Cross-correlations of underlying funds
What We Can Do For You
- Advanced hedge fund portfolio factor analysis (Kalman filters, Elastic-net, LASSO, AIC etc.)
- Portfolio stochastic simulation
- Marginal risk contribution analysis
- Portfolio Sensitivity analysis
- Principal Component analysis
- Stress testing incl. correlation stressing
- Portfolio What-if analysis
- Distribution adjustment analysis
- Structured products' analysis (on-demand)
- Crossr-correlation analysis
