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Investible indices tap into Asian fund demand

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A new series of investible indices is set to take advantage of growing interest in Asian hedge funds in Europe and other parts of the world.

A new series of investible indices is set to take advantage of growing interest in Asian hedge funds in Europe and other parts of the world. US investment adviser Maxam Capital Management is launching three regional indices on March 1 in conjunction with the Singapore-based research firm and index provider Eurekahedge, targeting smaller institutions, pension funds and other non-individual investors outside the United States.

According to Maxam managing director Rosemary Gilchrist, the range is starting with three indices covering Japan, Asia, and global emerging markets, but it may subsequently be expanded to incorporate other types of index product, such for instance investible indices covering global emerging market debt or equity managers.

The three launch indices are MaxEureka Asia, which will include Japan, Australia and New Zealand, MaxEureka Japan, which features managers with Japan-only mandates, and MaxEureka Global Emerging
Markets, which will cover emerging Asia, emerging Americas, Eastern Europe, Russia, the Middle East and Africa. Each index will initially select managers with an audited track record of at least one year on the basis of size of assets under management.

Gilchrist, who joined Maxam last November from Tremont Capital Management, where she was a senior vice-president and director of insurance, says the new series is designed to complement the current spectrum of global investible hedge fund indices in the marketplace. ‘We’re not seeing anything very similar to this type of passive index product,’ she says. ‘Many of the larger investible indices have exposure to the US markets only.’

The indices will be equally weighted, and will be launched with the top 30 managers by asset size in each category, although Gilchrist says that the number of managers may rise to as many as 50 by the end of the year. The products will have monthly liquidity with 60 days’ notice and a minimum investment of USD250,000, although Maxam expects that most investments will come in at more than USD1m.

The indices will not be available to investors in the US. Says Gilchrist: ‘We’re talking to some of the major banks in Europe about distribution, to institutions in Asia, the Middle East and Europe. We have seen a tremendous amount of interest, particularly over the past six to 12 months, for products including hedge funds that are not investing in US or Western European equities.’

New funds can be added as and when they become eligible and have been subject to due diligence by Maxam, which is also responsible for risk management. ‘Unlike with some other products out there, a fund that closes to new money will remain in our index,’ she says. ‘It’s our experience in   more than 20 years of hedge fund investing that when a fund closes, it does reopen again, as we’ve seen with some bigger-name hedge funds in recent months.’

Gilchrist says this is particularly true in emerging markets like Asia, where the underlying capital markets are themselves becoming more liquid. ‘That’s another reason why we’re seeing opportunities here.
Ten years ago, an emerging markets hedge fund manager wasn’t really shorting anything, because there wasn’t any liquidity in the markets to short.

 ‘Now they can borrow stocks, there are more stocks trading in local currencies, and there’s also a lot more debt available in local currencies. We hope these products will grow in tandem with the hedge fund managers in the region. They will also help build the industry by getting capital to some smaller managers.’

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