GLOBAL - Standard & Poor's (S&P) is set to launch a new hedge fund benchmark in a bid to attract more institutional money to the asset class.
The S&P Hedge Fund Index hopes to woo institutions who have been put off in the past by the lack of transparency surrounding hedge funds investment.
The index will contain 40 funds divided into three sub-indices: arbitrage, event driven and tactical, which will represent a total of nine specific strategies. These strategies include: macro; equity long/short; managed futures; special situations; merger arbitrage; distressed; fixed income arbitrage; convertible arbitrage and equity market neutral. The strategies will be equal weighted.
Commenting, Paul Aaronson, executive managing director at S&P, said that the index “filled a void” that exists in the market:
“While hedge fund assets have grown significantly over the last five years, that growth has been somewhat restrained by the reluctance of many institutional investors to invest in funds that are typically opaque, run by managers who don’t share many details about their operations.”
S&P has granted PlusFunds, a developer of passive hedge fund investment products, an exclusive license to develop certain investment products based on the index.
Any potential constituents must pass a series of screening tests after which eligible funds must offer daily transparency to be verified by a third party, in this case Derivatives Portfolio Management (DPM). Finally, candidate funds must also pass a due diligence process conducted by Albourne Partners.
By Madhu Kalia
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