S&P Hedge Fund Index Up 3.41% Since October

Investors Offshore, London

21 February 2003

Standard & Poor's Hedge Fund Index, which was launched in mid-November, and fell by 0.29% in its first two months (October and November), is now showing a 3.41% for the period since its inception. Its three component sub-indices are also all showing gains: the S&P Arbitrage Index is up 3.29%, the S&P Event-Driven Index is up 4.18%, and the S&P Directional/Tactical Index is up 2.78%.

S & P describes its Hedge Fund Index as offering investors an investable benchmark that is broadly representative of the range of major strategies that hedge funds employ. The index has 40 constituents divided into three sub-indices: S&P Arbitrage Index, S&P Event-Driven Index, and S&P Directional/Tactical Index, which in turn represent a total of nine specific strategies. These strategies include: Equity Market Neutral, Fixed Income Arbitrage, Convertible Arbitrage, Merger Arbitrage, Distressed, Special Situations, Long/Short Equity, Managed Futures and Macro. The strategies are equal weighted to ensure well-rounded representation of hedge fund investment approaches and to avoid over-representation of currently popular strategies.

The S&P Arbitrage Index (the first sub-index of the S&P Hedge Fund Index) is composed of funds attempting to exploit pricing differences among securities with similar risk characteristics, generally by taking long positions in the under-priced security and short positions in the relatively over-priced security. Typically, these strategies employ leverage to accentuate relatively small differences in price movements. These funds tend to have low systematic market exposure. The S&P Arbitrage Index has three component strategies: Equity Market Neutral, Fixed Income Arbitrage (including Mortgage Arbitrage), and Convertible Arbitrage.

The S&P Event-Driven Index (the second sub-index of the S&P Hedge Fund Index) is composed of funds attempting to exploit mispricings of securities as it pertains to specific events, which are typically security specific (as opposed to macro-economic trends). Generally, funds in this category are looking for significant changes in outlook for firms that are in financial distress, are merger candidates, or have mispriced securities. The S&P Event-Driven Index has three component strategies: Merger Arbitrage, Distressed, and Special Situations.

The S&P Directional/Tactical Index (the third sub-index of the S&P Hedge Fund Index) is composed of funds attempting to exploit general market trends or specific tactical situations. These funds are not market neutral, but rather are looking for anomalous prices using systematic or fundamental processes. They tend to have higher systematic market exposure. This S&P Directional/Tactical Index has three component strategies: Long/Short Equity, Managed Futures, and Macro.

S & P says that the calculation of daily values for the index and sub-indices provides a new level of transparency in hedge fund investing and enables investors to track the impact of specific market events on the hedge fund asset class as a whole or on the three broad style categories tracked by the sub-indices. Standard & Poor's makes this data available to all investors through its website www.spglobal.com. S&P Hedge Fund Index data will also soon be available on Reuters and Bloomberg.

Recommended