Hedge funds have come under increased scrutiny in the past couple of years, largely in part due to their underperformance relative to those of conventional assets. Disappointing headlines of lackluster returns, negative publicity surrounding manager compensation, and CALPERS’ decision to withdraw from hedge funds altogether – all points which have been addressed in previous posts on our blog – no doubt reflect a growing disenchantment with the hedge fund industry. However, a proper discussion of hedge fund performance in the broader context of portfolio inclusion warrants a closer inspection of the methods used to evaluate these strategies. What we’ll find...