RBC's Alternative Assets Group has launched the RBC Hedge 250 Index, a broadly diversified and representative investable hedge fund index.
The new index is comprised of 250 individual funds - up to six times more than the number of funds referenced by other investable indices. Funds represented in the new RBC index capture approximately 20 per cent of total hedge fund assets under management, including many funds that are closed to new investors, have longer lock-up provisions or have recently launched operations.
"We have capitalized on RBC's significant experience and relationships in the industry to create the RBC Hedge 250 Index which we believe to be the most representative investable hedge fund index in the market," says Winson Ho, co-head of the Alternative Assets Group and co-creator of the index. "There has been a great need in the market for an investable hedge fund index which does a better job of representing the performance of the asset class.
'Over the past several years, the performance of investable hedge fund indices has significantly lagged those of the non-investable indices by about 5 per cent per annum, based on information provided by the sponsors of those indices.
'This underperformance can be attributed to a number of factors which we sought to address in our development of the RBC Hedge 250 Index. As a result, we believe our index will be more successful in reflecting the performance of the non-investable indices."
The RBC Hedge 250 Index employs a screening process to identify component funds from a universe of 4,700 funds. The index follows a set of rules to direct and adjust the composition of the index over time. Unlike other investable hedge fund indices, the RBC Hedge 250 Index references actual hedge funds and not separately-managed accounts. This makes it possible to include a wide range of funds and managers, and not just those that are the most liquid and accessible.
"We believe our proprietary process results in an index which is more representative than other investable indices, and as a result, will more accurately reflect the industry's returns,' adds Ho. 'So far, this conclusion has been firmly supported by its performance. Since its inception in July 2005, the RBC Hedge 250 Index has had a net return of approximately 9 per cent. In comparison, over the same period, the noninvestable indices have averaged 10 per cent while the other investable indices have averaged 5.5 per cent, according to information reported by the sponsors of those indices. Given the unique way in which our index functions, we strongly believe it has a persistent tracking advantage over the other investable indices and therefore will be a valuable investable benchmark."
The RBC Hedge 250 Index categorizes hedge funds across nine strategies in four sectors: Relative Value: Convertible Arbitrage; Equity Market Neutral; Fixed Income Tactical: Equity Long/Short; Macro; Managed Futures Event-Driven: Credit; Merger & Special Situations Multi-Strategy: Multi-Strategy.
The initial weighting of is based upon a determination of each strategy's representation in the total hedge fund universe, while the number of funds representing each strategy is proportional to the weighting of that strategy, and within each strategy, the weighting of each fund will initially be equal.
Adjustments may be made monthly to the weightings of the strategies and the funds. Index performance will be reported monthly, along with intra-month estimates, at www.rbchedge250.com . The rules governing the operation of the index will also be available via this web site. RBC anticipates that a suite of products linked to the index will be available on a private placement basis to qualified purchasers. There may also be privately offered investment vehicles established by distribution partners in the future.
Background notes: For the past 10 years, RBC's Alternative Asset Group has created structured products referencing portfolios of hedge funds. It holds investments in over 1,000 hedge funds. AAG has developed a significant infrastructure and extensive experience in the areas of fund due diligence, risk analysis, transaction execution, and portfolio administration and valuation.
For further information and related articles on Structured Products, please click here