Manager selection is a multifaceted evaluation exercise for asset owners, OCIO teams, investment consultants. Two hedge fund candidates may exhibit similar headline Sharpe ratios while differing in tail behavior, factor structure, fee drag, and contribution to the total portfolio. Without a structured decision process, selection may default to headline return rankings or narrative conviction, without peer-relative or portfolio-level context.

This paper introduces a flexible and iterative four-decision framework for hedge fund selection where standalone, peer-relative, benchmark-relative, and portfolio-level analysis can be conducted sequentially or concurrently, according to your investment objectives and constraints. A set of fundamental questions needs to be addressed before a final allocation.

This paper focuses strictly on the quantitative due diligence in the hedge fund selection process. Investment due diligence and operational due diligence are also critical pillars of a comprehensive institutional framework, but they are not part of the current analysis.

Quantitative evidence assembled for this four-decision framework is primarily based on risk-return metrics, alpha-beta factor decomposition, and portfolio contribution, across market regimes, with historical lookback and forward-looking projections.