Practical Applications of Hedge Fund Networks

Abstract

In Hedge Fund Networks, from the Fall 2022 issue of The Journal of Alternative Investments, Gueorgui Konstantinov of LBBW Asset and Wealth Management explains the benefits of using network analysis to understand interactions among hedge funds, and particularly the transmission of risk. Networks based on graph theory can illustrate the interconnectedness of hedge fund strategies and visually display how risk can be concentrated and transmitted across funds. Some techniques include identifying cluster affiliations, computing centrality scores, graphing directed networks and correlation networks, distinguishing between hubs and authorities, and exploring alternative network models. Konstantinov shows how to develop a Hedge Fund Index of Centrality (HIC) and explores drivers of risk with factor analysis.