PT  - JOURNAL ARTICLE
AU  - William W. Jennings
AU  - Brian C. Payne
TI  - Extracting Factor Loadings from Capital Market Assumptions: What Is Embedded in Forecast Hedge Fund Returns?
AID  - 10.3905/jwm.2021.1.162
DP  - 2022 Jan 31
TA  - The Journal of Wealth Management
PG  - 128--141
VI  - 24
IP  - 4
4099  - https://pm-research.com/content/24/4/128.short
4100  - https://pm-research.com/content/24/4/128.full
AB  - We detail how to extract factor risk, return, and correlation assumptions from a set of asset-class risk, return, and correlation assumptions. Such capital market assumptions are key tools in institutional and high net worth investment operations. Using an institutional investment consultant’s asset-class assumptions, we use our technique to evaluate the implied factor loadings for a demonstration asset class, hedge funds, and find that much of their return comes from factor exposures. Our analytical approach offers useful insight to the veracity of capital market assumptions, key inputs to investment decision making.