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Aqr Delta

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What is unappealing in HFs: a) Illiquidity: redemptions only allowed at the end of the year + initial lockup b) Minimum investments requirements: $1million minimum c) High fees: 2% of asset managed (possibly + full cost of operations), + 20% of profits. d) Selecting the right HF manager: Lack of benchmark for hedge funds, difficult to assess skill vs. luck, idiosyncratic vs. systematic returns. e) Inability to gain access to high quality funds: some investors found the idea of selecting a portfolio from many thousands an intimidating task, because of lack of transparency f) Lack of benchmark indices: HF Indices were just peer groups, not true benchmarks, and were biased (i.e. style drift, survivorship bias).

Alternative Products of HFs: 1. Funds of Hedge Funds (FOFs): * Alternative to investing directly in HFs. * FOFs aimed to collect investors money and allocate it among a select group of HFs * Advantages: Solves a number of issues: modest capital can be used, less difficult liquidity rules and less likely to encounter liquidity problems since you have a number of funds rather than 1, access to hard to enter funds * Half of the money of HFs came through FOFs * Disadvantages: High FOF fees (1.5 higher than direct investing)

2. Multi-Strategy Funds: * Avoids problems of HFs employing one strategy at time. * Advantages: (over FOFs) did not charge an additional fee lay over and above HF fees, charged performance fees only when the total investment was in the money (FOFs not the same, fees regardless of performance), allocation of assets done by professionals with great insight, no trouble gaining access to managers, more liquid than individual funds, strong diversification, * Disadvantages: portfolio manager quality

3. HF Replication: * These strategies, implemented

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