Lyster Watson, a hedge fund advisory firm, has received US patent protection on its True Alpha hedge fund rating and ranking system.
The US Patent Office awarded the firm and portfolio manager Marc Freed US Patent No. 7,707,092 on 27 April.
First created in 2003, the methodology identifies superior hedge fund managers based on a fund’s True Alpha score, which compares its returns and volatility to its peer group.
Resulting rankings allow Lyster Watson’s portfolio management team to distinguish those managers who have demonstrated skill to generate above-average returns with less volatility.
“This patent is recognition of many years of hard work and highlights just how innovative our approach to identifying manager skill is,” says Robert Watson, chief investment officer and co-founder of Lyster Watson. “The True Alpha rating and ranking system provides insight into hedge fund performance in a way that enables us to develop customized solutions for investors seeking absolute returns in a liquid and transparent format.”
The firm has created a selection of more than 20 hedge fund indices cross-referenced by strategy and geography. The indices form the basis for the True Alpha Trend Trackers, a set of investable strategies designed to track the performance of these proprietary indices that reflect the strategy-level performance of thousands of hedge funds.
Unlike other hedge fund replication products that try to expose investors to aggregate hedge fund performance, True Alpha Trend Trackers identify the drivers of returns of strategy-specific indices. True Alpha Trend Trackers use liquid instruments such as exchange-traded funds, listed futures contracts, government bonds, and money market assets that mitigate liquidity, fraud, and manager risks.