Strategic - A long-term normal asset mix that represents a desirable balance of risk and return. The addition of hedge funds to a balanced portfolio of stocks and bonds can either add returns by keeping risk consistent, or lower risk by keeping returns consistent. Strategic Allocation is used when investors utilize coincident indicators, (such as individual hedge fund style risk and return parameters) to form a model portfolio.
Tactical - An active departure from a strategic asset mix, that can be used to replicate returns of traditional stock and bond portfolios by combining different hedge fund styles in an efficient manner. Tactical Allocation is used when investors utilize certain financial variables, (i.e. change in credit risk premiums) to determine the relative performance.
Regardless of the approach you choose, performance measurement is a necessary part of your due diligence. With SS&C's hedge fund solution, AdvisorWare, generating performance data is done with point-and-click ease from start to finish. Graphical presentations only require you to select the frequency, time period, portfolio, benchmark and graph type. AdvisorWare does the rest. A complete set of reports comes pre-loaded with the system. The reports are presentation quality and fully portable to other Windows applications.