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Calculating exactly what makes a hedge fund profitable or not has been something of a mystery. Skill, luck and market exposure may be the main ingredients, but as with all recipes, measuring each of these is key

Arguably, the returns of any hedge fund can be attributed to one of three things: manager skill, outright luck (alpha) or exposure to a given market or underlying driver of return (beta).

It is important for those seeking to invest in hedge funds to be able to estimate the contributions from each of these factors to the returns of any given fund because this is how to tell where the money has been made.

This area of analysis is fairly undeveloped in the hedge fund world, however, since such

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