Aberdeen Standard Investments (ASI) is creating products that track hedge fund performance, building on a Ucits hedge fund tracker that was launched earlier this year.
ASI has signed a deal with Hedge Fund Research (HFR), a provider of hedge fund indices and related services, to develop funds that can track the performance of investable hedge fund indices.
The announcement, which was made last week, comes after the ASI HFRI-I Liquid Alternatives strategy – a strategy tracking the index performance of about 180 Ucits hedge funds - has grown to about $650 million of assets under management since its launch in February.
Other product development includes ASI incorporating a monthly priced strategy designed to track the 500 hedge funds offering around 30 broad strategies that make up the HFRI 500.
Russell Barlow, global head of alternative investment strategies at ASI, said: “This partnership allows for a new benchmark for passive strategies in the hedge fund space. Traditional methods of creating hedge fund benchmarks have tended to fall short of the requirement to be investable or have resulted in sub-optimal tracking errors.”
Describing the approach as innovative, Barlow said HFR had created a series of indices following an approach that would typically be seen in the equity and bond space, meaning a product has the ability to physically own the underlying assets held in the benchmark. He argued that this made it a much more compelling benchmark for both hedge funds and hedge fund investors to reference when reviewing their investment strategies.
Other theoretical hedge fund indices exist but HFR said its set of indices would be unlike others. Each index constituent is screened to ensure they can be physically owned by a tracking product. Physical ownership reduces tracking error, the firms said, and constituent funds must be open to new investments.
Also, the index methodology must consider the dealing terms of funds in its rebalancing, which means “avoiding the biases found in other hedge fund indexes”, HFR added.
Joseph Nicholas, founder and chairman of HFR, claimed the collaboration with ASI represented a “historic strategic milestone across the alternative and traditional asset management industries”.
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