Role of Hedge Funds in Portfolio Clarification

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clearlycanadian

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Just reviewing the roles of alternatives in portfolios and I am wondering if someone can clarify this for me…
- Hedge Funds can be portfolio enhancers/diversifiers depending on type
- FOF structure might be best for diversification purposes as they perform similarly to benchmarks
- Including hedge funds may increase negative skewness and higher kurtosis which will need to be reduced through either investing in managed futures or adopting a MVO approach that is skewness/kurtosis aware
Is that correct as a summary?
 
I’d day that’s a good summary, maybe throw in that they are a skills-based strategy (like managed futures), which can provide added diversification. Also could mention that lower liquidity (lockout periods) can allow managers to take positions that could take a long time to pan out while mitgating potential of having to fund withdrawals at the wrong time.
 
If FoF is more highly correlated with equities, it provides less diversification benefit.
 
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