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We analyze the joint effect of non-linearity and time variation in hedge fund returns on the benefit for an investor to include hedge funds into his optimal portfolio. We model time variation with regime-switching and allow for an additional source of non-linearity with the use of copulas. We estimate the multivariate regime-switching copula model of Chollete, Heinen & Valdesogo (2009), with one symmetric Gaussian dependence regime and with a possibly asymmetric canonical vine regime, that allows for tail dependence. We follow Ang & Bekaert (2002a) and compute the gains for an active investor with CRRA utility, who considers different asset classes, from investing in any one of a number of hedge fund strategies. The asset classes we consider are U.S. stocks, a global bond index, and commodities.