Monday, October 4, 2010
Benchmarks: manage or compare against?
Many hedge funds pick several benchmarks to compare their performance with; for example, the DJIA, CPI, Barclay's Gov't Agg, S&P 500; but do they manage against any of these? No! Hedge fund managers are typically absolute managers who don't manage against any benchmark.
But even when you do manage against a benchmark, it's important that the benchmark align with your strategy. A growth manager, for example, shouldn't manage against the S&P 500 as they would be missing the entire value half.
Benchmarks are a challenging topic, which we'll explore further.