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By Jason Stipp | 01-25-2010 04:25 AM

Hedge Fund Strategies Without the Hedge Fund

Goldman Sachs Asset Management's Theodore Enders says hedge fund replication can bring risk-reduction benefits without a lot of the traditional drawbacks of hedge fund investing.

Jason Stipp: I'm Jason Stipp with Morningstar. We're visiting Goldman Sachs Asset Management in New York today, and we're going to talk about hedge fund replication with Theodore Enders. He is the vice-president and portfolio strategist for the Portfolio Strategy Group here at Goldman Sachs Asset Management.

Thanks so much for joining me, Theodore.

Theodore Enders: Thank you, Jason.

Stipp: Before we talk about the specific product that you folks have to offer, I just want to talk a little bit about hedge fund replication and alternative strategies and what the allure is for investors. Why would someone want to pursue this kind of an approach in their portfolio?

Enders: We find the attractiveness of alternative strategies to come really from the role of risk reduction in a client's portfolio, and risk reduction in an efficient way. If you think about the asset class of alternative investments, mostly hedge funds, they tend to have much lower volatility or risk than equities do, and they tend to be very efficient at converting that risk into returns.

When you incorporate strategies like that in a portfolio that has very beneficial efforts on the portfolio as a whole.

Historically people have had to turn to hedge funds with some very complicating characteristics associated with them in order to get that risk reduction and that volatility reduction and returns improvement. But with hedge fund replication, there are opportunities to get the same benefits without a lot of the drawbacks.

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