How can we test whether a hedge fund programme is adding value to large institutional investor portfolios? This question has grown in importance since the financial crisis, as an eight-year equity bull market has made hedging unattractive. Frequently, hedge fund programmes are compared to the asset class they most resemble (for example, a hedge fund programme is sometimes compared to a long-only equity index, such as the MSCI All Country World Index). In this context, the performance of many hedge fund managers has lagged significantly since 2009. Given that hedge funds may have lower market exposures than a long-only equity benchmark, is this fair? If not, how should they be measured? We argue that a beta-matched mix of stocks and bonds is the most appropriate measuring stick for customized hedge fund programmes, as it compares them to the risk profile that investors could achieve using traditional markets.Determining the appropriate benchmark mixTo determine the appropriate mix of stocks and bonds to use in comparison with a hedge fund programme, first consider its long-term equity beta. While the beta exposure can vary from one year to the next, over a reasonable three-to-five year evaluation period, the beta of most diversified programmes does not vary greatly.