We construct a time-varying factor model of hedge fund returns that accounts for market risk, leverage, illiquidity and tail events. We also adjust for database biases arising from voluntary self-reporting. Using a constant beta model, we find no evidence of excess returns for the average hedge...

Existing research suggests the average private equity* manager does not create excess returns over public markets net of fees. We confirm this result using a factor model that allows for leverage, illiquidity and volatility clustering. The model explains 70 to 90 per cent of the variation in...