Talenthedge launches investable hedge fund index

Talenthedge is a German consulting enterprise, founded in 2002 by Rene Friedrich to  provide investable hedge fund index designs to financial institutions. The indices may be licensed by qualified institutional investors for the creation of index-linked structured products or hedge index funds / index-tracking funds.

The index license fee is a monthly percentage of index-linked assets under management, or about 0.25% per year. Index prices are initially published online, at www.talenthedge.com/tihfi, together with the index profile. The website also includes an online shop for the purchase of index licenses.

A one-month test offer allows qualified institutions to test the constituents data with a test-offer license, for a flat-rate fee (Euro 2610, incl. VAT). The indices include systematic, rule-based hedge funds only, many additional selection conditions are used. All conditions are also published at the Talenthedge website.

Friedrich said: "The aim of the index is to be a performance benchmark for funds of hedge funds. So maximum diversification was not the aim here, rather minimum diversification and a high level of risk control."

The index has five to 20 constituents; it was launched with five constituents, but more are likely to be added over the coming months, according to Friedrich. The capacity of the TIHFI index is up to USD 4 billion. One of the selection conditions specifies a minimum remaining capacity of USD 200 million per fund.

Friedrich said: "The minimum capacity is also the maximum contribution to the index, as the constituents are equally weighted. Some have argued that one of the key advantages of investable indices is access to capacity – this is certainly the case here."

Monthly hedge fund ranking and constituents’ qualification is done through the Talenthedge check-list questionnaire, which quantifies qualitative information.

The index launch had to be postponed repeatedly. Friedrich said: "The start would have been much earlier if the selection conditions were less strict, but the unique focus of this index is what truly sets it apart."

Friedrich noted that among the innovations promoted by the index is a systematic, transparent ranking which -together with the live online database- allows for dynamic updates of index constituents, every second month, or under some conditions even monthly. TIHFI is up 3.42% in October. A back-fillled pro-forma track of the index has a year-to-date performance of 16.82%.

The performance is net of fund fees but not net of index fees, which are about 0.25% per year. It is not possible to invest directly in a Talenthedge index and unlike the performance of the index, the performance of index-linked products may be influenced by structuring costs, tracking errors and additional business and investment risks.

copyright hedgeweek 2003