S&P To Launch Hedge Fund Index

by Carla Johnson, Investors Offshore, London

08 May 2002

New York-based credit-rating agency Standard & Poor's, which already manages the stock-market index S&P 500, is to launch the S&P Hedge Fund Index this summer. Hedge funds' historical market has been wealthy individuals, who would not pay for comparative index data, but the market is now of increasing interest to institutions, whose investment committees demand - and will pay for - more information on fund management than wealthy individuals ask to see.

S&P will compete against established hedge fund indices such as Hennessee Group and CSFB/Tremont Advisors, but will face the same problems as these firms, being the notorious secretiveness of largely unregulated hedge fund operators, and the problem of maintaining a representative basket of funds when many of them go out of business in their early days of operation.

"We believe that the S&P Hedge Fund Index will fill a void that exists in the hedge fund industry," said Paul Aaronson, executive managing director at S&P. Existing indices attempt to survey large numbers of hedge funds, but S&P said its hedge fund index will not try to capture how the world's approximately 6,000 hedge fund managers are doing, instead gauging the industry based on the performance of a handful of funds.

S&P said all nine strategies ranging from long/short equity to convertible arbitrage will be equally weighted to ensure the index is well rounded. Funds will have to meet strict requirements and deliver daily numbers that can be verified by a third party so the index can be calculated daily, S&P said. The CFSB/Tremont Index, by contrast, is issued monthly.

The S&P Hedge Fund Index will be maintained by a committee that will be in charge of supervising the index, as is the stock-market S&P 500 Index.

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