Can hedge fund returns be replicated with simple factors?

Studies show 60-80% of many hedge fund returns are explained by traditional risk factors. The truly idiosyncratic alpha is much smaller than reported returns suggest, often just 1-2% per year.

Why use hedge fund replication?

Factor-based clones offer hedge fund-like exposure at much lower cost (0.1% vs. 2%+) with full liquidity, transparency, and no lockups — valuable for allocators assessing fair value of hedge fund fees.

Hedge Fund Factor Replication Calculator

Replicate hedge fund returns using liquid factor exposures. Run rolling-window regressions to identify time-varying factor loadings (equity, bond, credit, FX, commodity, volatility) and construct a factor-based clone.

Principal ($)

Annual Rate (%)

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Compounding / Year

$ Finance Disclaimer: These calculators are for educational and illustrative purposes only. Results do not constitute financial advice. Consult a licensed financial advisor before making investment or borrowing decisions.

How It Works

Each component has a specific meaning:

Liquid factor exposures — The liquid factor exposures recorded for the scenario being assessed.

Note: Interpret the hf replication result against the thresholds and context described above.

How to Use

Enter the liquid factor exposures for the scenario you are assessing. Replicate hedge fund returns using liquid factor exposures. Run rolling-window regressions to identify time-varying factor loadings (equity, bond, credit, FX, commodity, volatility) and construct a factor-based clone. Use the hf replication result to inform your calculation.

Hedge Fund Factor Replication Calculator

How It Works

How to Use

Frequently Asked Questions

Can hedge fund returns be replicated with simple factors?

Why use hedge fund replication?