Kellogg%20School%20of%20Management%20Hedge%20Fund%20Conference

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Kellogg School of ManagementHedge Fund Conference

• Panel Discussion
• Evolution of Hedge Fund Industry,
• Risk and Return
• Moderator
• David A Hsieh
• Duke University

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Growth in Demand for Hedge Funds

• FY2001 FY2005
• University Endowments
• Amount invested 14.4b 49.6b
• of assets 6.1 16.1
• Top 200 DB Plans
• Amount invested 3.2b 29.9b
• of assets 0.1 0.8
• Source NACUBO, Pension Investments.

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Growth in Supply of Hedge Funds

• Estimated Number of Hedge Funds and Assets Under
  Management (excl FOF)
• 2001 2005
• Number 3,904 6,667
• AUM 539b 1,105b
• Source HFR.

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Declining Trend in Hedge Fund Returns?(4-Year
Moving Averages)
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Declining Alpha?

• Estimated Monthly Alpha based on a 7-factor
  model
• 1994/2- 1998/10- 2000/4-
• Index 1998/9 2000/3 2004/12
• HFRI 0.0028 0.0132 0.0012
• FOF 0.0009 0.0093 0.0006
• Have-Alpha 0.0047 0.0160 0.0018
• Beta-Only -.0017 0.0066 -.0002
• Source Fung, Hsieh, Naik, Ramadorai (2006).

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Questions for Panelists

• Demand what is causing endowments and pensions
  to invest in hedge funds? Will it continue?
• Supply are styles and strategies changing over
  time? What are potential new styles?
• Risk are risks in hedge funds (type amount)
  changing over time?
• Return will net-of-fee returns, and alphas,
  continue to decline?