Hedge Fund Indices
Hedge Fund Industry Index OptionsHere is a short discussion on the use of hedge fund indices in the industry:
As hedge funds grew to approach $2,000bn (£1,231bn, €1,548bn) in assets under management, before the recent sell-off, indices measuring their performance sprouted, with more than a dozen hedge fund indices now vying for industry watchers’ attention.
Hedge funds are privately managed and do not publicly report performance data, so accurately measuring the industry’s performance presents special challenges.
The indices draw on the same pool of roughly 10,000 hedge funds in their databases, and their performance data are roughly similar.
However, within the indices there are differences in methodology that can give rise to differences in the performances they report. Understanding these differences can help investors use the indices.
Most indices measure only the largest funds, effectively cutting out a third to a half of the 10,000 funds operating in the industry. Most also require that a fund be operating for at least a year before they include it in their index.
Credit Suisse Tremont, which produces one of the oldest hedge fund indices, includes 500 funds in its index, culled from a database of about 5,000 funds. It only includes funds that have a minimum investment level of $50m, audited financial statements and a one-year track record. That excludes about 3,000 funds from its database. Source