Hedge Fund Portfolio Opportunity Distributions (HedgePOD) applies the scientific principles of modern statistics to the problem of hedge fund evaluation. First, performance evaluation is viewed as a hypothesis test, where the hypothesis is “Performance is good.” The hypothesis is then tested by comparing the actual outcome of a process with all of the possible outcomes. If the actual outcome ranks high among all of the possibilities, the hypothesis of “Hedge fund performance is good” can be accepted with statistical confidence.
HedgePOD achieves this statistical testing process by creating all of the possible hedge funds that could have existed through time given a specific hedge fund strategy. If an individual hedge fund performs well against the opportunities generated by its specific strategy, that fund has succeeded in delivering good performance, a conclusion that can be stated with confidence since the outperformance has been identified with scientific precision.
Further, HedgePOD is able to solve problems that previously vexed other evaluation tools: each hedge fund is unique, and therefore without peers. This problem is solved through the use of scientific Monte Carlo peer groups, the firm said.
HedgePOD software is available at an introductory price of $7,000 per year. An evaluation copy may be downloaded from http://www.ppca-inc.com/hedgepods.html .