If you cant beat em ...
Blue Sky Group is road-testing hedge fund cloning strategies in a move that could see the Dutch pension plan manager become a hedge fund in its own right.
Fons Lute, chief investment officer, has steadfastly held out against investing in hedge funds. We have never invested in hedge funds and have no intention to do so in the short term. As an asset category, we dont think they serve much of a purpose unless you invest 15% or more of the portfolio in hedge funds, he said. He thinks most hedge funds overcharge for beta-like returns.
So instead, the plan is exploring hedge fund clones, strategies that try to copy hedge fund returns for a considerably lower fee.
Mr. Lute said he and his team have been looking at recently launched strategies offered by Merrill Lynch and Goldman Sachs, but at this stage they favor an approach called payoff distribution replication, pioneered by Harry M. Kat, Professor of Risk Management at Cass Business School in London.
Mr. Kats structure seems to be very competitive, compared to the others, said Mr. Lute.
According to Mr. Kats website, at www.fundcreator.com, his approach allows users to create futures trading strategies with pre-defined properties such as returns with a specific volatility or a certain correlation to stocks and bonds.