Abstract
A new approach for relative evaluation of fund managers within a portfolio (book) is based on the explicit positions of the funds and the positions of the overall portfolio. The approach decomposes each fund9s return into beta and alpha components relative to the overall book. Tests of this book benchmark analysis on a portfolio of equity-based hedge funds during a 31-month period indicate its alphas are significantly more predictive than returns for short in-sample periods (six to nine months). This suggests that book benchmark alphas are a valuable quantitative tool for managing a portfolio of hedge funds with position-level transparency. While the analysis here is developed for a fund of hedge funds because of data considerations, the book benchmark concept is more general it can be used in any circumstances involving manager selection as long as there is position-level transparency. <b>TOPICS:</b>Portfolio management/multi-asset allocation, manager selection, performance measurement
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