A new survey by Jacobson Fund Managers indicates that investible hedge fund indices (IHFIs) "do not provide any real benefits over funds of hedge funds".
Given the rapid rise in popularity of IHFIs across Europe, this new survey is bound to raise temperatures among the leading players in the market as the debate over the pros and cons of IHFIs vs funds of hedge funds (FoHFs) intensifies.
London-based Jacobson stated: "Faced with a bewildering array of choice, how does today's investor decide between these two investment vehicles and which offers the best potential result in terms of diversification, risk and return?"
"Nobody disputes that FoHF's have certain limitations in terms of capacity, liquidity, transparency and the ability to rebalance to incorporate better performing strategies."
"Based on all the current information available, Jacobson's research shows that it is by no means a forgone conclusion that IHFIs improve or remove these known limitations. In fact FoHFs retain a preferred edge over IHFIs in key areas."
The survey aimed to provide answers to some key questions, including:
* Are Investible Hedge Fund Indices (IHFIs) actually providing a viable alternative to investing in Funds of Hedge Funds (FoHFs)?
* Are IHFIs worth the cost, given their returns, risk/reward profiles and investment restrictions?
* Are IHFIs just another form of FoHFs under a different name?
Jacobson's survey indicates that:
1) In their current state IHFIs appear not to provide any real benefits over FoHFs. Lack of uniformity in the reported performance of identical strategies suggests that unequal returns and risk/reward profiles exist across the various IHFIs.
2) IHFI's sell themselves on the basis of more choice and more capacity but if all the best managers are already invested in by FoHFs (and in many, but not all cases, the good managers are already at or near capacity) how are IHFI's obtaining the capacity they are offering?
3) There is currently no undisputable basis for the claim that IHFIs offer a viable alternative to FoHFs.
Hedgeweek readers can avail of the complete Jacobson survey as a downloadable pdf by accessing the "Reports' section on the hedgeweek web site .