Investors Wary Of Hedge Fund Replication Products

Nov 25 2008 | 1:13pm ET

A new EDHEC survey has found that investors are not at all convinced that hedge fund replication products work the way they’re intended to or that hedge funds can be replicated in the first place.

The report found that although asset managers agree on the two main advantages of hedge fund replication—high liquidity at relatively low cost—criticism outweighs praise. Many investors believe that the behavior of hedge fund managers is not replicable, and consequently that any replication product is unlikely to replicate any managerial skill.

Managers also criticize the poor performance, the lack of transparency, and the deficient technology of the replication products on offer. Not surprisingly, only 15% of the respondents have invested in replication products, while 30% report that they will never do so.

For the time being, investors prefer actual hedge funds or other substitutes for hedge funds to passive replication products.


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