“A point you might want to consider re anybody who claims to be replicating hedge fund returns BEFORE fees is that you can’t simply add back a fixed percentage to the published returns (even if you knew what the ‘right’ percentage of fees was across the many different fee structures which sit within an index). High water marks and hurdle rate arrangements (which of course also vary significantly across funds in the index) mean that any regression analysis has to deal with the fact that the factor coefficients are time varying.

“Simply taking off an average is going to smooth the ‘fees’ and effectively remove the high water mark provision. A high water mark is a very big incentive for a manager not to take big hits as it can mean many months surviving on management fees alone – not a happy prospect when you have large fixed monthly costs.

“I suggest you ask DB what their ‘methodology’ is for re-creating the before fee returns.”