Withdrawal Symptoms Hit Investable Indices

Date: Friday, September 8, 2006
Author: Dailyii.com

Investors appear to be getting wise to the fact that investable hedge funds are falling down on the job of tracking the industry and are taking their money elsewhere. According to The Wall Street Journal, the investable indices that at one time boast $12 billion are dropping; Hedge Fund Research, for example, reportedly has lost 8% of its investable assets so far this year. The reason is that while the indices are supposed to track the HF industry at large, the returns have been somewhat smaller than the benchmark. The main culprits seem to be the composition of the investable indices, which often don't include some of the biggest and best hedge funds because they don't provide info on themselves; the exclusion of funds that are closed to new investments; and funds that haven't been operating for two years - all that skew the results down. How poorly do the investable indices perform? The WSJ reports that the Credit Suisse/Tremont Hedge Fund Index has grown 6.6% since Jan. 1, but its investable counterpart is struggling below 5%; and the MSCI Hedge Fund Composite Index has risen 5.1%, but its investable version stands 2.2 percentage points below that at 2.9%. Despite the discrepancies, investable advocates defend their usefulness. "The hedge fund industry needs a benchmark to compare itself off, and it is more realistic to compare to an index that can be invested in," Lyxor Chairman Alain Dubois says.