TAILIEUCHUNG - The Role of Long/Short Equity Hedge Funds in Investment Portfolios

Economic access includes both the use of productive land and other natural resources to directly produce food and to gener- ate income as well as functioning distribution, processing and market systems that can move food from the site of production to where it is demanded. Thus, the existing ability to individually or communally cultivate land (on the basis of ownership or other form of tenure) must be protected. Under human rights law, people who depend on land (water, forest) for their livelihood, have a right to this land even if the national law does not grant them explicit use or tenure. | DB Absolute Return Strategies RESEARCH 1 inA nniMT AUGUST 2004 VIEWPOINT ars The Role of Long Short Equity Hedge Funds in Investment Portfolios R. McFall Lamm Jr. . Chief Investment Strategist EXECUTIVE SUMMARY Long short equity hedge funds have historically outperformed traditional long equity exposure with lower risk. This is a result of a demonstrated capability by long short managers to generate alpha via stock selection rotation in and out of cash and timely shifts in market exposures . large vs. small capitalization sector geography etc . As a consequence long short managers have tended to generate a highly favorable characteristic a higher correlation to equity markets in rising markets and lower correlation in falling markets sometimes referred to as an asymmetrical risk return profile . Over the past decade assets under management by long short equity hedge funds have grown more than 20 annually. This expansion was the most rapid of any hedge fund strategy and long short managers have displaced global macro funds to claim the largest share of industry assets. Although a portion of this growth in long short assets was attributable to market appreciation the demonstrated ability of the managers themselves was also a key factor stimulating inflows. In my view the optimum portfolio allocation should include adequate doses of unconstrained long short managers in lieu of passive or active long equity exposure. Indeed if one relies solely on the historical performance record long short managers would entirely displace traditional long-only managers. This view holds up even when long short manager returns are liberally adjusted downward to reflect possible survivor bias. And while there is no guarantee that long short manager performance will hold up in the future it would take a severe deterioration in manager capabilities to justify no allocation in my opinion. There is no one preeminent asset allocation scheme for delineating the role of long

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