The S&P Hedge Fund Index will offer investors an investable benchmark that is broadly representative of the range of major strategies that hedge funds employ. The Index will contain 40 funds divided into three sub-indices: Arbitrage, Event Driven and Tactical, which in turn 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 to ensure well-rounded representation of hedge fund investment approaches and to avoid over-representation of currently popular strategies. The index is expected to be launched during the third quarter of this year.
"The S&P Hedge Fund Index is an excellent example of our leadership in innovative index creation and the expansion of our business across asset classes," said Rik Kranenburg, Executive Vice President, Standard & Poor's. "We are delighted to add the S&P Hedge Fund Index to Standard & Poor's growing portfolio of indices measuring global equity, credit and commodity markets."
"We believe that the S&P Hedge Fund Index will fill a void that exists in the hedge fund market," said Paul Aaronson, Executive Managing Director, Standard & Poor's. "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." He added, "The S&P Hedge Fund Index will reflect the same rigorous and objective standards that characterize all Standard & Poor's indices, which we expect will help satisfy the concerns of many investors."
Potential index constituents must pass a series of quantitative screening criteria to ensure that they conform to their stated strategy's return and risk characteristics. After this screening, eligible funds must agree to offer daily transparency so that their valuations can be verified by a third party, in this case Derivatives Portfolio Management (DPM), and so that the index may be computed on a daily basis. Finally, the candidate funds must pass a rigorous due diligence process conducted by Albourne Partners Ltd., a hedge fund consultant to Standard & Poor's, to ensure that 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 to the www.spglobal.com website.
The index will be maintained by an Index Committee managed by Standard & Poor's that will meet regularly to ensure that inclusion criteria are being met and to implement necessary rebalancing. A decision to include a hedge fund as a component of the S&P Hedge Fund Index does not reflect an endorsement by Standard & Poor's or the Committee of the investment merits of the fund. Standard & Poor's expects to announce the index composition and methodology by the third quarter of this year.
Product Licensing
Standard & Poor's has granted PlusFunds, a developer of passive hedge fund investment products and a service provider for the hedge fund industry, an exclusive license to develop certain investment products based on the index.
Peter Roffman, Vice President, Standard & Poor's Portfolio Services, stated, "In keeping with Standard & Poor's tradition of creating investable indices, the S&P Hedge Fund Index has been designed to enable the creation of index products that facilitate investor exposure to the asset class and offer a more informed process for hedge fund investing."
Noted Christopher Sugrue, Chairman of PlusFunds, "Indexing is the next major development in the hedge fund industry. We believe the S&P Hedge Fund Index is well diversified and that it represents a good vehicle for providing well-defined market exposure."
About Standard & Poor's
Standard & Poor's, a division of The McGraw-Hill Companies, provides independent financial information, analytical services and credit ratings to the world's financial markets. Among the company's many products are the S&P Global 1200, the world's first real-time, investable global equity index, the S&P 500, the premier U.S. portfolio index, and credit ratings on more than 220,000 securities and funds worldwide. With more than 5,000 employees located in 18 countries, Standard & Poor's is an integral part of the global financial infrastructure. For more information, please visit www.standardandpoors.com.
