Hedge Fund Selection for Family Offices: A Trading Strategy Based on Risk-adjusted Performance Measures

In recent years portfolio management within a large universe of hedge funds has become a key area of research. In this paper, the authors propose a strictly quantitative hedge fund investment approach that is of straightforward practical relevance for family office practitioners. It can be shown that portfolios constructed under the new approach are able to considerably outperform an equally-weighted index of hedge funds in an out-of-sample analysis. Thus, there seems to be evidence that the proposed approach represents a valuable tool for investors.