Replicating Famous Hedge Funds

Do Hedge Funds Generate Alpha or Simply Provide Factor Exposure?

April 2019. Reading Time: 10 Minutes. Author: Nicolas Rabener.


  • Diverse hedge fund strategies can be replicated via factor-mimicking portfolios
  • The analysis highlights that most returns are explained by factors, not alpha
  • However, hedge funds can create value by harvesting factor returns efficiently via portfolio construction


In 1973, the U.S. Food and Drug Administration (FDA) published the first regulations that required the nutrition labeling of certain foods as consumers were left in the dark about what they were eating. The regulations evolved and culminated in the widely-recognized nutrition facts panel in 1994, which provides standardized information on the calories and composition of most foods. Although this has not prohibited the obesity crisis in the US, at least consumers have transparency on how much fat, cholesterol, sodium, carbs, and protein they are eating.

Investors would similarly benefit from higher transparency via standardized labeling for investment products as it is often unclear what they contain. One of the largest information asymmetries within the investment industry can likely be found in hedge funds, which typically appear mysterious and secretive in their strategies and investment behavior.

In this short research note, we will analyze five well-known hedge funds from a factor perspective and conduct a simple performance replication via factor-mimicking portfolios (read Hedge Fund Factor Exposure & Alternatives).


Our selection of five hedge funds is based on these being available in the UCITS format, which provides daily price data for analysis. These hedge funds all feature impressive track records and manage USD billions in assets. The strategies are quite diverse and the focus is mostly on equities.

The five hedge funds and their strategies are the following:

  • York Event-Driven fund: Event-driven strategy
  • PSAM Global Event fund: Event-driven strategy
  • Standard Life GARS fund: Multi-asset macro strategy
  • Marshall Wace TOPS fund: Equity market neutral strategy
  • AQR Equity Market