@article {Gulko88, author = {Les Gulko}, title = {Performance Metrics for Hedge Funds}, volume = {5}, number = {4}, pages = {88--95}, year = {2003}, doi = {10.3905/jai.2003.319075}, publisher = {Institutional Investor Journals Umbrella}, abstract = {Hedge fund performance is difficult to evaluate not only proactively but also after the fact. This article introduces an ex post appraisal method that captures unique features of hedge funds. First, hedge funds are not stand-alone investments; they serve to enhance portfolio yield and/or diversification. Second, return alone is not a sufficient statistic for evaluating hedge funds; volatilities and correlations to other assets also matter. Third, hedge funds are so heterogeneous that one-to-one comparisons are usually meaningless and existing benchmarks are not reliable. The author proposes to evaluate hedge funds in combination with a market portfolio. The combined portfolio, called the test portfolio, internalizes the hedge fund{\textquoteright}s return, volatility, and correlations. Next, the author introduces a risk-adjusted return that allows for one-to-one comparisons across all hedge funds embedded in test portfolios. Finally, the market portfolio emerges as a benchmark that is as relevant for hedge funds as for traditional investments.}, issn = {1520-3255}, URL = {https://jai.pm-research.com/content/5/4/88}, eprint = {https://jai.pm-research.com/content/5/4/88.full.pdf}, journal = {The Journal of Alternative Investments} }