With so much uncertainty about the exact strategies employed by hedge fund managers, and with growing investor concerns about the large fees they charge, is it possible to replicate hedge fund returns?
The Cleveland Clinic Investment Office put students enrolled in the Masters in Finance program at the Weatherhead School of Management to the test. Through a real-world case competition organized by the Investment Office, students developed models that were evaluated based on their ability to forecast hedge fund returns and investigated if it’s possible to generate hedge-fund-like-returns using passive indexes.
Throughout the course of the fall semester, students worked in teams to employ sophisticated statistical methods and finance theory to replicate the main performance trends of three hedge fund managers. The students’ objective was to combine passive stock and bond indexes in order to replicate the average performance of active hedge fund managers.
The models developed by the students were evaluated based on their ability to forecast hedge fund returns out of sample. All teams presented in class with members of the Cleveland Clinic Investment Office present as judges.
The winning team comprised of Feihong Ge (MSM-Finance ’19), Hao Jing (MSM-Finance ’19), Jixuan Shi (MSM-Finance ’19), and Yifei Xu (MSM-Finance ’19), along with their professor Ralitsa Petkova, presented their findings and recommendations to the Chief Investment Officer and senior staff at the Cleveland Clinic Investment Office in Beachwood, OH.
The Cleveland Clinic Investment Office is an asset allocator that invests across a globally diversified pool of asset classes and employs many of the world’s most successful investment managers for security selection of public and private equities, fixed income, absolute return strategies, real assets and derivative products. The Investment Office is responsible for managing and growing a $10 billion investment portfolio.
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