The University Endowment Fund is considering making an investment in hedge fiinds. Its investment committee is meeting to decide which of the following four hedge funds should be selected:

 

■ COE Fund，a “fund of fiinds;”

 

■ Savior Capital，an “equity market neutral” fund;

 

■ Alphameric Advisors, a ''distressed debt arbitrage" fund;

 

■ MarketView LLC，a “long-only value investing in distressed securities” fimd. During the meeting, committee members made the following statements:

 

Statement 1 "The Sharpe ratio is not the best performance measure for hedge funds because it is based on the assumption of normality of returns.”

 

Statement 2 Alphameric Advisors5 investment style involves selling the traded debt of the distressed company under consideration, and buying the debt of non-distressed companies.”

 

Statement 3 "It is better to use and equally weighted hedge fimd index to reflect the potential diversification of hedge fluids rather than a value-weighted index. This is because value weiglitiiig may result in Hie index taking on the return characteristics of the best-performing hedge fiinds, creating a momentum effect in returns."

 

Statement 4 "The Sortino ratio is the best means to examine the consistency of hedge fund returns.”

 

One of the investment committee members noted that MarketView LLC has a “2 and 20 fee structure with a high-water mark provision,55 and wondered what that meant.