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This paper provides a comprehensive explanation of hedge fund replication. This paper first reviews the characteristics of hedge fund returns. Then, the emergence of hedge fund replication products is discussed. Hedge fund replication methods are classified into three categories: Rule-based, Factor-based, and Distribution replicating approaches. These approaches attempt to capture different aspects of hedge fund returns. This paper explains the three methods. The established cycles of the manufacturing industry has eventually made its way to the hedge fund industry. In the manufacturing industry, many companies compete to develop new products protected by patent. This is often a very expensive process involving large amounts of money invested to develop sophisticated proprietary technology.
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