Hedge fund index providers have collaborated to provide benchmarks for manager selection and performance that account for volatility levels.
Markov Processes International (MPI), which works with Eurekahedge and BarclayHedge, says adding ‘target volatility’ to two existing benchmarks designed for institutions will make risk analysis of hedge fund performance better.
Target volatility versions of the MPI Eurekahedge 50 Tracker Index are now available with 6% or 8% volatility, while the MPI Best 20 Tracker Index, which tracks the MPI Barclay Elite Systematic Traders Index, comes in 8% and 10% volatility versions.
“You can scale up the volatility and scale up the risk level of the proxy index to get an ‘apples-to-apples’ comparison,” said Rohtas Handa, head of institutional solutions at MPI.
MPI originally collaborated with Eurekahedge and BarclayHedge to design indices better suited to institutional investors by accounting for manager size, strategy weightings and survivorship bias, among other factors that might influence the return from an index.
“Our hedge fund indices were developed to address a general dissatisfaction in the market with using traditional hedge fund benchmarks for manager or product selection,” said Handa. “By removing many of the biases that plagued traditional indices, we’ve delivered a better benchmark for evaluating complex alternative products.”
Handa said earlier indices were less suitable for institutions because, for example, institutions were less prone to use smaller hedge funds, or funds with short track records.
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