Ah, the good old days – when the hedge fund “secret sauce” was revealed and suppliers set about developing the products that would bring it to investors the world over under the moniker “hedge fund cloning”.  But as Swiss researchers Erik Wallerstein, Nils Tuchschmid and Sassan Zakerc note in a recent paper called “How do hedge fund clones manage the real world?”:

“Some years ago hedge fund replication was a much discussed topic on the hedge fund horizon. A credit crunch and some hedge fund Ponzi schemes later, the attention has turned elsewhere.  2008 performance of broad hedge fund indices where dismal at best. This did not bode well for selling pitches to persuade investors to turn to funds which replicate this performance.”

However, the trio goes on to argue that the $2 billion hedge fund replication business is far from dead.  Hedge fund replicas, they say, “…have several unique and interesting features, many which where attractive during the crises of 2008.”

They analyze the recent performance of 21 hedge fund clones from 17 companies covering the full spectrum of replication techniques from factor replication to distributional replication to mechanical replication.  (see the “Alternative Beta and Hedge Fund Replication” category at the right side of this page for extensive coverage of these topics).

Here’s how the 21 fund stack up from March 2008 to May 2009 (chart based on data in paper)… More…