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

Research on optimal hedge fund allocation by Edhec Risk Institute and supported Newedge has potential implications for hedge fund and funds of hedge funds managers using portfolio optimisation.


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

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