Besides the performance, liquidity and transparency benefits of investment strategies based on hedge fund clone research, family office and institutional investors are increasingly using AlphaClone as a due diligence tool when evaluating hedge funds. Here's why:
- Test for fraud: The performance of a fund's clone portfolios should be correlated with the fund's actual performance especially for fundamentals based equity long/short strategies. Need data? The single worst performing clone amongst funds in AlphaClone's hedge fund universe was for Galleon Management. Even more telling, the spread between the fund's actual returns and that of its clones was a mile wide. Investing $100 with the fund on 5/30/2000 returned 150% (net) on 9/30/2009 vs. a loss of -78% for the fund's Top 20 Holdings clone over the same period.
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Discover performance attribution: using AlphaClone's audit spreadsheets which are available upon request, investors can see exactly which clone holdings generated the best and worst returns since inception. Was their a high win rate or did the manager win big but less often? What sector(s) does the manager excel in picking winners? How does the clone perform in different market conditions.
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Compare clone vs. fund: comparing the performance of a clone to an actual fund's returns can give fantastic insights on how well risks are managed by the fund and to what extent their alpha stems from their short or undisclosed positions (i.e. shorts).
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Clone before you buy: investors can use AlphaClone's platform to monitor the daily performance of several clone strategies based on the manager or managers they are evaluating – all before making an allocation.
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Discover concentration/overlap: investors can analyze current and historical holdings across multiple managers to determine the level of overlap over time.
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Find emerging talent: we can easily add managers to our universe and we're happy to add specific managers based on a client's request. For long/short fundamentals based hedge fund managers with at least two or three years of filing history – running the analysis steps above can be a good way to identify new talent.
If you are a family office or institutional investor please contact us to learn more about how we can help you with your next due diligence exercise.
