@article {Brunel35, editor = {Brunel, Jean L.P}, title = {Revisiting the Role of Hedge Funds in Diversified Portfolios}, volume = {7}, number = {3}, pages = {35--48}, year = {2004}, doi = {10.3905/jwm.2004.450959}, publisher = {Institutional Investor Journals Umbrella}, abstract = {Observing that hedge funds have clearly become one of the most important building blocks in diversified portfolios over the last several years, the author starts by digging into the error associated with the classification of these strategies under one single header (i.e., hedge funds). He demonstrates that the hedge fund universe is really quite heterogeneous and that it should therefore be broken down into distinct subgroups. The author then revisits the critical issue of the difference in the return distribution experienced by hedge funds in general: the skewness of many return series, the survivorship bias inherent in these series, the dangers associated with self-reporting, the excess kurtosis that affects many strategies, and their general lack of tax-efficiency. Finally, the author addresses the question of the place of hedge fund strategies in a diversified portfolio, suggesting that a traditional mean-variance optimization model is not likely to produce a successful allocation.}, issn = {1534-7524}, URL = {https://jwm.pm-research.com/content/7/3/35}, eprint = {https://jwm.pm-research.com/content/7/3/35.full.pdf}, journal = {The Journal of Wealth Management} }