Standard & Poor's is pencilling in a third quarter launch for an investable hedge fund index ba...
Standard & Poor's is pencilling in a third quarter launch for an investable hedge fund index based on 40 portfolios invested across nine different strategies.
The aim of the S&P Hedge Fund Index is to provide a transparent benchmark of the hedge fund asset class. This will be broadly representative of the range of major strategies hedge funds employ, according to the group.
The 40 funds will be divided into three sub-indices: arbitrage, event driven and tactical. In turn, these will represent a total of nine specific strategies: macro, equity long/short, managed futures, special situations, merger arbitrage, distressed, fixed income arbitrage, convertible arbitrage and equity market neutral.
The strategies will be equally weighted to ensure well-rounded representation of hedge fund investment approaches and to avoid over-representation of popular strategies.
Potential index constituents must pass a series of quantitative screening criteria to ensure they conform to their stated strategy's return and risk characteristics. After this, eligible funds must agree to offer daily transparency so their valuations can be verified by a third party, in this case Derivatives Portfolio Management (DPM), and so the index can be computed on a daily basis.
Candidate funds must also pass a due diligence process conducted by Albourne Partners Ltd, a hedge fund consultant to Standard & Poor's, to ensure they are appropriately managed, adhere to their stated strategy or style and maintain all necessary risk controls and operational infrastructure. Index values will be posted daily on the www.spglobal.com website.
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