Overlay or Hedge Fund? A Comparison of Leverage, Fees and Implementation

By: Paul Chadwick, Mark Mueller, Urban Mueller, Tina Vandersteel, GMO
Published: June 2005


“What are the key structural differences between overlays and hedge funds when the manager’s strategy is the same in both cases? We examine the three main differences: leverage, fees and implementation. This paper demonstrates under what circumstances a plan sponsor searching for an overlay manager might pay less in fees by choosing a hedge fund structure. It also discusses important implementation issues that may limit a plan sponsor’s ability to consider either structure.”

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