HFR and CrossBorder Capital have joined forces to launch HFRXPlus, an enhanced version of its HFRX Index Tracker Fund.
John Godden, Managing Director of HFR, said: "Risk management is critical to all investment decisions and a systematic risk overlay for hedge fund investors is what the marketplace is demanding. HFRXPlus is a timely product and we are enthusiastic about its potential."
The new product employs a unique risk management overlay (TSSTM) to outperform the Index through altering the weighting of individual strategies within the Index. TSS (Tactical Style Selection) is a quantitative risk management tool that optimises the allocation to specific hedge fund styles based on their sensitivities to certain risk parameters.
TSS will be provided by CrossBorder Capital, the London-based investment adviser. TSS was started in 1999 and since then has added an average 260 basis points per annum to average portfolio returns whilst delivering lower volatility.
David Straker-Smith, Managing Director of CrossBorder Capital, said: "Hedge fund investors have moved on from simply buying individual managers. The risk control of a portfolio of hedge funds has become critical and to achieve this the underlying investments must have both definable risks and the liquidity to change positions if needed: HFRXPlus provides both. HRFXPlus will prove to be an excellent cash management tool."
HFRXPlus uses the same platform as the established HFRX Index. It covers representation baskets of individual managers across eight hedge fund management styles. HFRXPlus systematically changes the exposure to each style basket on a monthly basis according to the prospective risk background.
Risk is assessed by CrossBorder Capital's TSS risk management system. TSS is a neural network-based quantitative model that uses Central Bank data, financial conditions and money market activity to estimate certain risk parameters. The optimal portfolio is calculated monthly according to the sensitivities of hedge fund styles to these risks. This optimal portfolio constitutes the HFRXPlus Fund.