The perception that hedge funds are too risky to add value to the retail space is ill-founded, according to a fund manager.
While still primarily a tool for institutional investors, hedge funds can add value without unqualified risk to retail investor portfolios, Bennelong Funds Management chief executive officer Jarrod Brown said.
He said equity-based funds outperformed the S&P/ASX 200 Accumulation Index over a 10-year period with less risk.
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Meanwhile, on the Sharpe Ratio, investors earned more than twice as much for each unit of risk if they invested in the AFM Equity Fund Index, as opposed to the S&P/ASX 200 Accumulation Index.
However, underlying concerns about fees and liquidity often cause retail investors to shy away from hedge funds, he said.
"The good news is that the AFM data shows that Australian hedge funds are generally cheaper than offshore-based funds," he said.
"Hedge funds might not be suitable for everyone - and their structures, strategies and risks certainly require additional research and understanding on the part of advisers and clients alike.
"But the reality is that the best hedge funds can provide outstanding performance with significantly lower volatility than traditional managed funds."