LBS Podcast Demystifies Synthetic Hedge Funds

Yesterday’s post highlighted a course on pitching a hedge fund offered by professor Leon Metzger at Yale School of Management. Today, we point you to a new London Business School podcast with Narayan Naik, professor of finance and director at LBS’s Hedge Fund Centre, who talks about the increasing popularity of synthetic hedge funds and discusses whether investing in synthetic funds is a genuine alternative to the traditional hedge funds.

For the uninitiated, synthetic hedge funds analyze the performance of traditional hedge funds and attempt to replicate that performance without a hedge fund manager, with associated lower fees. Naik likens the cloned funds to a plane with an autopilot function – investors should decide if the value added by having a ”˜pilot’ is worth more than the fees charged. The cloned fund also has the advantage of being less subject to human behavioral biases, he says, and also offers more transparency and daily liquidity.

Naik also discusses the factors that will influence demand for synthetic funds, the steps involved in replicating a hedge fund strategy, and explains that synthetic hedge funds may perform better than traditional funds in the economic downturn. If this topic piques your interest and you’ve got 12 or so minutes to spare, take a listen as professor Naik breaks it all down for us.


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