Will “hedge fund replication” benefit from new short selling bans?
Sep 22nd, 2008 | Filed under: Alternative Beta & Hedge Fund Replication, Today's PostAt a conference on “alternative beta and hedge fund replication” here in New York today, attendees debated questions such as: What is hedge fund beta? What do institutional investors want from hedge funds and has this changed? and Is 2& 20 at risk?
But the elephant in the room was the question of what will happen now that so many short positions – the bread and butter of the hedge fund community – are no longer executable in many parts of the world? The ban on short-selling seems to be snowballing as various jurisdictions slam the door in an effort to avoid becoming the last place on earth to short financials. (For a great run-down of the current situation in various countries, see this post at FT Alphaville). As one attendee here told me today, “This could be spell the end for hedge funds – at least in the short term”.
Will these new constraints on short selling breathe life into the recently anemic “hedge fund replication” business? If institutional investors begin to steer clear of hedge funds but still want to tap into their unique return distributions and lack of correlation to equities, then we may be on the verge of a renaissance for these funds.
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