The added value of hedge funds in an asset-liability framework

Otruba, Susanne; Quesada, Carmen Estevan de; Scholz, Stefan

doi:10.1057/palgrave.jam.2240193

Cited by 3 publications

(4 citation statements)

References 8 publications

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“…Results of testing the first hypothesis conform with previous research findings of Kat (2005), Otruba et al (2006), Hoevenaars et al (2008), Jaggi et al (2011), Abrams et al (2012Abrams et al ( , 2014 and Štimac (2012) since adding hedge funds and managed futures to a portfolio of traditional investments significantly improves the portfolio efficiency. Main difference here is that in this research domestic (Croatian) bonds and stock are used, but also other foreign traditional investment classes while the observed period is very versatile and long.…”

Section: Findings and Discussionsupporting

confidence: 85%

“…Amin and Kat (2003) studied the impact of integrating hedge funds into stock portfolios and determined that due to their low correlation, hedge funds positively influenced portfolios when combined with stocks. This conclusion was supported by Otruba et al (2006) and Hoevenaars et al (2008). Bacmann et al (2008) analyzed the correlation between various hedge fund types and traditional investments, refuting the notion that hedge funds lacked the necessary diversification properties.…”

Section: Literature Reviewmentioning

confidence: 89%

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Untitled

2023

Zb. rad. Ekon. fak. Rij.

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The challenge posed by historically low-interest rates is particularly significant for insurance companies, especially those specializing in life insurance. This study investigates a potential solution by analyzing the impact of introducing lowcorrelation alternative investments into traditional investment portfolios. The research employs two methods: firstly, optimization using the Markowitz model, and the multicriteria optimization model is utilized to test the advantages of including alternative investments. Secondly, the study assesses the effects of interest rate fluctuations on both traditional and alternative investments through the Vector Autoregressive (VAR) model. The results from both optimization models during the analyzed period confirm the hypotheses, indicating that integrating alternative investments positively influences portfolio returns, risk management, and overall efficiency. Additionally, the study explores the influence of interest rate changes on domestic stocks, bonds, hedge funds, and managed futures. While there were theoretical expectations of a significant impact, confirming that interest rate changes have a stronger effect on bond and stock yields compared to hedge funds and futures yields remains inconclusive. Nevertheless, the research underscores the significance of diversifying investment portfolios with low-correlation alternative assets in the face of a low-interest rate period. These findings offer valuable insights for insurance companies seeking strategies to navigate the complexities of financial markets.

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Section: Findings and Discussionsupporting

confidence: 85%

Section: Literature Reviewmentioning

confidence: 89%

Untitled

2023

Zb. rad. Ekon. fak. Rij.

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“…Moreover, Bollen et al [ 42 ] describe that hedge fund allocations successfully reduced portfolio volatility in during specific subperiods but failed to improve the Sharpe ratio, highlighting the nuanced trade-offs associated with hedge fund inclusion. Otruba et al [ 43 ] further demonstrate that hedge funds enhance the risk-return profile of portfolios while reducing the probability of underfunding. Amin and Kat [ 44 ] demonstrate that hedge funds improve the portfolios’ risk-return proﬁle, when mixed with the S&P 500, but fail to do so as a standalone investment.…”

Section: Literature Reviewmentioning

confidence: 99%

New trading strategy in investment and a new anomaly: A study of the hedge funds from emerging and developed markets

Wong,

Cheong,

Chui

et al. 2023

Heliyon

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“…Amin and Kat 14 corroborate this evidence showing that hedge funds improve the mean-variance characteristics of traditional portfolios, but that they also lead to lower skewness and higher kurtosis, mitigating therefore their added value. Analysing hedge fund allocations in an asset and liability framework, Otruba, Quesada and Scholz 15 suggest that hedge funds add value by improving the risk-return profile of the portfolio in a surplus context and help lower the probability of underfunding. In all the previously mentioned studies, hedge funds are considered first as a portfolio -some authors (for example, French 13 ) would even say as a stand-alone asset class -that is managed as a stand-alone investment or in a global portfolio context.…”

Section: Introductionmentioning

confidence: 99%

Boost your traditional portfolio: Activate traditional asset classes with alternative investments

Jaggi¹,

Jeanneret²,

Scholz³

2011

J Deriv Hedge Funds

Self Cite

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We propose a new methodology to include hedge funds in a traditional portfolio. The concept of 'substitution' consists of activating a passive traditional investment strategy in a given asset class by adding active hedge fund strategies focusing on the same asset class. Our analysis, based on long-term data, shows that activated asset classes outperform the passive investments in terms of total performance, risk-adjusted performance and downside protection. Aggregating activated asset classes into an overall portfolio improves the efficiency of the initial portfolio without deteriorating its fat tail risk. Finally, we show that the 'substitution' approach leads to similar results as an optimisation approach in which the hedge fund portfolio is optimised as a stand-alone investment class and then added to the traditional portfolio. These findings validate an alternative solution for institutions that want to invest in hedge fund strategies, a solution that may be closer to their approach of portfolio management.

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The added value of hedge funds in an asset-liability framework

Cited by 3 publications

References 8 publications

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New trading strategy in investment and a new anomaly: A study of the hedge funds from emerging and developed markets

Boost your traditional portfolio: Activate traditional asset classes with alternative investments

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