Barclays Capital, the investment banking division of Barclays Bank, has launched two flagship hedge fund replication products, the Long Barclays Alternatives Replication Index and the S
Barclays Capital, the investment banking division of Barclays Bank, has launched two flagship hedge fund replication products, the Long Barclays Alternatives Replication Index and the Shortable Barclays Alternatives Replication Index.
The long index closely tracks the global hedge fund industry, including funds that are no longer investible. Barclays says that in 2008 it was the most accurate tracker of the alternatives industry.
The shortable index enables investors to short market exposure to the hedge fund universe. In the current climate this can assist clients seeking to maintain the current value of illiquid positions or express a bearish (short) view.
The products provide linear and non-linear exposure to asset classes including equities, credit, rates, FX and commodities, giving consideration to geographic and other market differences.
Frank Gerhard, head of fund-linked derivatives strategy at Barclays Capital, says: ‘The hedge fund industry is changing – transparency and liquidity are increasingly important for institutional clients and investment managers. We can now deliver replication strategies in a range of formats to augment or manage direct fund exposures, and provide daily liquidity.’
Lev Dynkin, head of quantitative portfolio strategy, adds: ‘The replication methodology underlying the Barclays Alternatives Replicators includes several innovations such as reconstitution of incentive fees, use of non-linear instruments and a dynamic optimisation algorithm. Despite the unprecedented market conditions, the methodology performed well since it was first funded in October 2007 and has outperformed not only the investible HFR index but the main composite hedge fund indices as well.’
The Long Barclays Alternatives Replication Index methodology was developed by the quantitative portfolio strategy team at Lehman Brothers (now part of Barclays Capital Research) and has been funded since October 2007, with its performance publicly available for scrutiny and verification. It has now been re-launched by Barclays Capital’s dedicated fund-linked derivatives team along with the newly developed Shortable Barclays Alternatives Replication Index.
The indices can be tailored, and other liquid replication solutions are expected to follow.
