Optimal hedge fund allocation present challenges for hedge funds and FoHF managers

Optimising allocation


Given that hedge fund returns are not distributed in a Gaussian manner, in the classic bell curve distribution around the mean, mean-variance optimisation techniques, which would be sub-optimal and impact negatively on the investor’s welfare, they need to be replaced by optimisation procedures that incorporate higher-order moments and co-moments.

Optimal portfolio decisions relating to hedge fund style allocation require estimates not only for co-variance parameters but also for co-skewness and c