How to double a Sharpe ratio

Alternative investments have proved their worth. Witness the estimated $1 trillion under management in alternative assets, or the recent decision by major pension funds such as Calpers or British Telecomto to allocate up to 5% of their portfolio to alternative assets. And yet, standard risk-adjusted performance indicators often prove unsuitable for hedge funds, which rely on highly specific techniques. This article begins by examining the recent losses investors have suffered at the hands of these standard indicators and then goes on to suggest new indicators that are better suited to the unique requirements of alternative investment management.