All About Alpha Exclusive: An interview with EDHEC’s Lionel Martellini
Mar 12th, 2007 | Filed under: Alternative Beta & Hedge Fund ReplicationA Martini with Martellini
Consultant and journalist Pierre Saint-Laurent* covers EDHEC’s Asset Management Days in Geneva this week for All About Alpha. On Monday, he sat down with EDHEC’s Lionel Martellini to have a frank discussion about hedge fund replication in advance of Martellini’s much anticipated presentation on Tuesday.
Martellini, one of the top EDHEC researchers, is the co-author of a new study** on the topic (to be presented for the first time at the conference). Martellini is a member of the editorial board of The Journal of Portfolio Management and The Journal of Alternative Investments. His research on quantitative asset management and derivatives valuation has been published in leading journals and featured in major dailies such as The Financial Times and The Wall Street Journal.
Pierre Saint-Laurent (PSL): Professor Martellini, thank you for meeting with All About Alpha. In your words what exactly is hedge fund replication?
Lionel Martellini: Hedge fund replication is a set of investment approaches that hold the promise of lower fees, greater transparency, and higher liquidity while accessing alternative risk premia. The delivery of so-called “alternative beta” allows us to maintain desirable distributional asymmetries with these added benefits. At least, that’s the objective.
There are two main approaches to HF replication. The first is factor-based replication, the second is payoff distribution replication.
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[…] All About Alpha Exclusive: An interview with EDHEC’s Lionel Martellini […]
Regarding the approaches to Hedge Fund Replication, Martellini describes two approaches - factor based and payoff replication but missed out one of the best strategy - actual trade replication i.e. creating an index of the basic trade itself. E.g. the ML Volatility Arbitrage Index or Mitchell Pulvino Merger Arbitrage Index and similar the DB G10 Currency ETF Fund (FX Carry Trades) so on etc.
Expect far more on the Actual Trade Replication as the basic Hedge Fund Trades get “Index”ified!
[…] Overall, we find it to be a very good survey of the state of the replication field. In the words of the authors, Noel Amenc, Walter Gehin, Lionel Martellini (Hall of Fame, related posting), and Jean-Christophe Meyfredi: “The purpose of this position paper is to provide an in-depth analysis of the subject, with an emphasis on the findings based on the last ten years of academic research on hedge fund performance analysis and replication, and a discussion of the implementation challenges related to a commercial offering based on these concepts.” […]