Wellington Offers Hedge Funds' Portfolio Building Guidelines

Hedge fund investors have had difficulty since the onset of the 2008 financial crisis, with a notable deceleration of fund returns and higher than expected equity correlations. With this in mind, a new white paper from institutional consultant Wellington Management provides a framework for building a diversified hedge fund portfolio.

The portfolio management framework being proposed by Wellington’s Allocation Strategies team members Adam Berger and Jeffery Sinder challenges traditional notions that ended up so wrong in 2008. In particular, the white paper, “Hedge fund investing after seven lean years,” advocates diversifying across different strategy groups.

This means considering the correlation of a strategy to the positive movement of the equity markets and diversifying on this basis. Many...