Front Cover -- Title page -- Copyright Page -- Table of Contents -- Preface and Acknowledgments -- About the editor -- List of contributors -- Part One: Performance -- 1 Rank alpha funds of hedge funds -- 1.1 Introduction -- 1.2 Hedge fund data and biases -- 1.3 Factor models for hedge funds -- 1.4 Model estimation -- 1.5 Rank alpha -- 1.6 Optimizing funds of hedge funds -- 1.7 Cleaning the covariance matrix -- 1.8 Performance analysis of rank alpha portfolios -- 1.9 Conclusion -- References -- 2 Funds of hedge funds: bias and persistence in returns -- 2.1 Introduction -- 2.2 Database -- 2.3 Methodology -- 2.4 Descriptive statistics -- 2.5 Bias analysis -- 2.6 Persistence in performance -- 2.7 Conclusion -- References -- 3 Replication and evaluation of funds of hedge funds returns -- 3.1 Introduction -- 3.2 The KP efficiency measure -- 3.3 Evaluation results -- 3.4 Distributional analysis -- 3.5 Conclusion -- References -- 4 Performance, size, and new opportunities in the funds of hedge funds industry -- 4.1 Introduction -- 4.2 Experimental framework -- 4.3 Factor model for fund of funds -- 4.4 Sample formation -- 4.5 Performance decomposition of FOF portfolios -- 4.6 Principal components of FOF returns -- 4.7 Conclusion -- References -- 5 Optimal fund of funds asset allocation: hedge funds, CTAs, and REITs -- 5.1 Introduction -- 5.2 Data -- 5.3 Methodology -- 5.4 Results -- 5.5 Conclusion -- References -- 6 The changing performance and risks of funds of funds in the modern period -- 6.1 Characteristics of funds of funds -- 6.2 Comparing returns: funds of funds vs. hedge funds -- 6.3 Ancient history vs. modern history: LTCM as the defining moment -- 6.4 Factor analysis of returns -- 6.5 The future of funds of funds -- References -- 7 Hedge fund indices: Are they cost-effective alternatives to funds of funds? -- 7.1 Introduction.

7.2 Funds of funds -- 7.3 Investable hedge fund indices -- 7.4 Distribution of returns and potential biases -- 7.5 Asset-based style factors -- 7.6 Mean excess return and Sharpe ratio comparisons -- 7.7 Fung and Hsieh model alphas and information ratio comparisons -- 7.8 Correlation with traditional asset returns and lagged equity return comparisons -- 7.9 Conclusion -- References -- 8 Simple hedge fund strategies as an alternative to funds of funds: evidence from large-cap funds -- 8.1 Introduction -- 8.2 Data -- 8.3 Methodology -- 8.4 Empirical results -- 8.5 Conclusion -- References -- Part Two: Diversification, Selection, Allocation, and Hedge Fund Indices -- 9 Funds of funds of hedge funds: welcome to diworsification -- 9.1 Introduction -- 9.2 The art and science of diversification -- 9.3 Analysis -- 9.4 Diversification results -- 9.5 How about the fees? -- 9.6 Conclusion -- References -- 10 Style analysis of funds of hedge funds: measurement of asset allocation and style drift -- 10.1 Introduction -- 10.2 Sharpe's model for style analysis -- 10.3 Data set -- 10.4 Hedge fund classification -- 10.5 Accuracy of Sharpe's model -- 10.6 Measuring the style drift -- 10.7 Conclusion -- References -- Appendix -- 11 Gains from adding funds of hedge funds to portfolios of traditional assets: an international perspective -- 11.1 Introduction -- 11.2 Data -- 11.3 Method -- 11.4 Results -- 11.5 Conclusion -- References -- 12 Tactical asset allocation for hedge fund indices at one- to six-month horizons -- 12.1 Introduction -- 12.2 The model -- 12.3 The results -- 12.4 Conclusion -- References -- 13 Single-strategy funds of hedge funds: How many funds? -- 13.1 Introduction -- 13.2 Decomposition -- 13.3 Conclusion -- References -- Part Three: Construction and Statistical Properties of Funds of Hedge Funds.

14 Distributional characteristics of funds of hedge funds returns -- 14.1 Introduction -- 14.2 Hedge funds: background -- 14.3 Testing for normality -- 14.4 Data and summary performance information -- 14.5 Results -- 14.6 Conclusion -- References -- 15 Funds of funds and the diversification effect -- 15.1 Introduction -- 15.2 Mean-variance spanning tests -- 15.3 Data description -- 15.4 Empirical results -- 15.5 Conclusion -- References -- Appendix -- 16 Higher-moment performance characteristics of funds of funds -- 16.1 Introduction -- 16.2 Performance assessment basics -- 16.3 Data and methodology -- 16.4 Performance characteristics of funds of funds -- 16.5 Enhancing FOF performance -- 16.6 Results -- 16.7 Conclusion -- References -- 17 The market risk of funds of hedge funds: a conditional approach -- 17.1 Introduction -- 17.2 Estimation of the regimes for the core assets -- 17.3 Implications for hedge funds returns modeling -- 17.4 An application to stress testing -- 17.5 Conclusion -- References -- 18 Revisiting the Fama and French model: an application to funds of funds using nonlinear methods -- 18.1 Introduction -- 18.2 Methodology -- 18.3 Data -- 18.4 Results -- 18.5 Conclusion -- References -- 19 Investor's choice: an investor-driven, forward-looking optimization approach to fund of hedge funds construction -- 19.1 Introduction -- 19.2 Data set: defining market patterns -- 19.3 Methodology: investor-driven objectives and the optimization algorithm -- 19.4 Empirical analysis: exhibiting the new degrees of freedom -- 19.5 Conclusion -- References -- Part Four: Monitoring Risk, Overview of Funds of Funds, Due Diligence, and Special Classes of Funds of Funds -- 20 Moments analysis in risk and performance monitoring of funds of hedge funds -- 20.1 Introduction -- 20.2 Funds of hedge funds.

20.3 Investing in funds of hedge funds: a practical approach -- 20.4 Data description, empirical analysis, and results -- 20.5 Analysis of trade-off -- 20.6 Conclusion -- References -- 21 An overview of funds of hedge funds -- 21.1 Introduction -- 21.2 Creating a portfolio of hedge funds -- 21.3 Ongoing portfolio management -- 21.4 Returning to the problem of the individual investor -- 21.5 Tracking funds of funds -- 21.6 Conclusion -- References -- 22 Institutional investment due diligence on funds of hedge funds -- 22.1 Introduction -- 22.2 The gap: fiduciary responsible investing vs. private client products -- 22.3 Exploring institutional fiduciary responsibility -- 22.4 Exploring fiduciary responsibility: what IBM has that the average hedge fund of funds needs to incorporate -- 22.5 Conclusion -- References -- 23 Synthetic collateralized debt obligations (CDO) squares and the continuing evolution of funds of funds -- 23.1 Introduction -- 23.2 Development of synthetic CDO squares -- 23.3 Structure of synthetic CDO squares -- 23.4 Recharacterization risk -- 23.5 Conclusion -- References -- 24 Natural resources funds of funds: active management, risk management, and due diligence -- 24.1 Introduction -- 24.2 Emerging demand for natural resources investments -- 24.3 Diversified, active-management opportunities in natural resources investing -- 24.4 Risk management in natural resources futures trading -- 24.5 Due diligence in natural resources fund of funds investing -- 24.6 Conclusion -- References -- 25 Identifying and monitoring risk in a fund of hedge funds portfolio -- 25.1 Introduction -- 25.2 Diversification and overdiversification -- 25.3 Liquidity -- 25.4 Transparency -- 25.5 Factor and impact analysis -- 25.6 Conclusion -- References -- 26 The wizardry of analytics for funds of funds -- 26.1 Introduction: If only I had good risk analytics.

26.2 You're not in Kansas anymore -- 26.3 Click your heels and say "There's nothing like diversification" -- 26.4 We're off to see the wizard -- 26.5 The man behind the curtain -- 26.6 Follow the yellow brick road -- 26.7 Conclusion: You're never going back to Kansas -- References -- 27 Quantitative hedge fund selection for funds of funds -- 27.1 Introduction -- 27.2 Indicators for hedge fund selection -- 27.3 Data -- 27.4 Empirical results -- 27.5 Conclusion -- References -- Index.