[Verse 1] When Sharpe ratio just won't do the trick There's more to measure, let's think quick Performance needs a deeper view Beyond the basics that we knew Sortino looks at downside risk alone While drawdown shows when funds have grown Then fallen back from their peak height Appraisal ratio shines the light [Chorus] Sort it out with Sortino's way Down and up, but down we weigh Draw it down from peak to low App-raise-al shows the alpha flow Measure more than Sharpe can say Performance metrics light the way [Verse 2] Sortino ratio takes the stage Divides return by downside rage Only negative deviation counts When calculating risk amounts Standard deviation penalizes both Good and bad, but here's the oath We only care when returns fall Below our target after all [Chorus] Sort it out with Sortino's way Down and up, but down we weigh Draw it down from peak to low App-raise-al shows the alpha flow Measure more than Sharpe can say Performance metrics light the way [Verse 3] Maximum drawdown tells the tale Of peak to trough without fail The biggest loss from high to low Shows how far the fund can go Recovery time matters too How long until we're back in view Of previous heights we used to see Duration of our misery [Chorus] Sort it out with Sortino's way Down and up, but down we weigh Draw it down from peak to low App-raise-al shows the alpha flow Measure more than Sharpe can say Performance metrics light the way [Bridge] Appraisal ratio stands apart Active return's beating heart Divided by the tracking error Shows if manager's superior Alpha over active risk This is what we shouldn't miss Skill-based returns are what we seek Not just beta's market streak [Chorus] Sort it out with Sortino's way Down and up, but down we weigh Draw it down from peak to low App-raise-al shows the alpha flow Measure more than Sharpe can say Performance metrics light the way [Outro] Three new tools in your CFA kit Sortino, drawdown, appraisal fit Together they reveal the truth Of hedge fund performance proof
← Hedge Fund Structures and Operations | Hedge Fund Due Diligence →