Adding select hedge funds improves portfolio diversification and boosts returns.
The article explains how to understand and improve hedge fund returns for investors. By analyzing different factors that drive returns, investors can choose hedge fund managers more effectively. The main benefit of adding hedge funds to a portfolio is diversification, but it's important to select managers carefully to get true diversity. To do this, investors need to focus on capturing alternative risk premiums and pure alpha. This approach can enhance portfolio diversification and potentially improve overall returns.