Title: Funds of hedge funds' role in portfolio diversification during crisis: the case of Cyprus

Authors: Simona Mihai-Yiannaki; Lucia Gibilaro; Gianluca Mattarocci

Addresses: School of Business Administration, European University of Cyprus, 6 Diogenis Str., 2404 Engomi, P.O. Box 22006, 1516, Nicosia, Cyprus ' Department of Law, Economics, Politics and Modern Languages, University LUMSA, Via Pompeo Magno 28, 00192 Rome, Italy ' Department of Management and Law, University of Rome 'Tor Vergata', Via Columbia 2, 00133 Rome, Italy

Abstract: Despite the poor value delivered, institutional investors prefer to invest in funds of hedge funds (FOHFs) because of diversification opportunities they offer. Even though geography represents a core factor in diversification strategies, investment choices by managers are driven by the proximity to the hedge fund, therefore little is known on geographical diversification without US focus and on the contribution of the single country especially in the event of crisis. By looking at hedge funds from the UK, Ireland and Cyprus, results show that geographical diversification matters for FOHFs. Independently from the RAP measure selected, funds based in Cyprus do not outperform with respect to other market, but they contribute to the reduction of systemic risk, tracking error or downside risk exposure.

Keywords: hedge funds; performance; funds of hedge funds; FOHF; portfolio diversification; Sharpe ratio; Treynor index; Jensen's alpha; Modigliani's square; information ratio; Sortino index; Cyprus.

DOI: 10.1504/GBER.2022.10046364

Global Business and Economics Review, 2022 Vol.26 No.3, pp.218 - 230

Received: 03 Mar 2021
Accepted: 06 Oct 2021

Published online: 22 Apr 2022 *

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