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Why We SkyRank Hedge Funds
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The hedge fund industry has grown significantly since its birth in 1949 by A.W. Jones who established the first hedge fund.
Jones' hedge fund was successful at creating a product with smoother returns, lower volatility and higher risk-adjusted returns than what was previously available in the stock and bond markets.
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A new asset class was born, one with distinct return characteristics to those of traditional markets.
Approximately $1 trillion in assets are invested in hedge funds spanning over 50 different strategies, and all signs point to more growth in the future.
Due to this rapid growth, we now see all kinds of hedge funds attempting to stake their claim in this growing subsector of financial markets. What started out as an investment product delivering low volatility, steady returns, has evolved into a dark forest of undefined product. Due to the misdirection of the hedge fund, the variance of quality in the industry has become tremendous.
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Individual Hedge Funds |
| High | Average | Low |
| Volatility | 72.77% | 10.36% | 0.21% |
| Returns | 174.50% | 11.71% | -28.42% |
| Sharpe | 38.02 | 1.44 | -4.95 |
All data annualized. Funds greater than 1 year old.
Funds: 3755. As of 1/19/05.
Data by HedgeFund.Net. |
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Various asset classes must primarily be defined by their return characteristics. Stocks are more volatile than bonds, offering the potential for great returns, at the risk of loss through equity ownership; this is represented by low risk-adjusted returns, usually under .3. High grade bonds offer the comfort of steady current income, with lower volatility of returns than stocks; this is represented by slightly higher risk-adjusted returns than stocks, usually around .5. Low grade bonds, though their returns resemble stocks more than bonds, are distinctly different in return characteristic to both.
Hedge funds, moreso than any other traditional or alternative investment product, have a characteristically different and superior return portrait; true hedge funds offer extremely high risk-adjusted returns unavailable elsewhere in the capital markets. The risk-adjusted return of a true hedge fund exceeds 1.5 and sometimes may exceed 20. This is rare in the financial services industry, and we believe that characteristic should be sought out, defined, standardized, and treasured.
Originally developed to reduce market risk and to deliver steady uncorrelated positive returns, the hedge fund includes products without definition representing an incredible diversity of return and risk characteristics. We believe only a portion of the hedge funds in the current universe can truly claim to be hedge funds.
The SkyRank System, the most comprehensive hedge fund rating system in the industry, is now considered the standard rating methodology. It identifies and rewards established, credible hedge funds that deliver high risk-adjusted returns with little to no correlation to traditional markets.
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