chapter  14
18 Pages

■ Dampening Hedge Fund Volatility through Funds of Hedge Funds

There are a few key takeaways to point out regarding the analysis of the simulation results.

When evaluating hedge funds or funds of hedge funds within a strategy, the minimum track record will have little influence on the volatility of the average fund. However, there is evidence of a higher-volatility period included in the 10-year annualized volatility numbers that drops off as time decreases. So, one must be careful to consider the track record length when thinking about the possible dispersion in volatility. One may expand the analysis of return history by representing the distribution as a combination of peaceful times and eventful, more volatile times with greater correlation among strategies that occur during crises (Till and Gunzberg, 2005).