Evaluating Hedge Fund Performance Metrics

In evaluating the performance of hedge funds, a common metric used is the Sharpe Ratio, which is derived from the return of the portfolio minus the risk-free rate divided by the portfolio's standard deviation. However, hedge funds often employ various strategies that can alter their risk-return profile. This complexity leads to the consideration of other metrics for a more comprehensive performance evaluation.

In this context, which of the following performance measures specifically adjusts for the directionality of returns and accounts for the potential skewness and kurtosis inherent in hedge fund returns?