RBC debuts investable hedge-fund index

FWR Staff

15 March 2006

Bank says its version broader, more attuned to market than rival indices. RBC Capital Markets’ alternatives unit has launched “a broadly-diversified and representative investable hedge-fund index,” on which it, and others, may eventually base investment products.

RBC’s Hedge 250 Index tracks the performance of 250 funds, which RBC says is roughly six times greater than the number of funds “referenced” by other investable indices. RBC adds that the funds represented in its new index “capture approximately 20%of total hedge fund assets under management, including many funds that are closed to new investors, have longer lock-up provisions or have recently launched operations.”

Among other investable hedge-fund indices are those of CSFB/Tremont, the Hedge Fund Research and Standard & Poor’s.

But RBC says that information gleaned from sponsors indicates that investable hedge-fund indices have trailed those of non-investable indices by about 5% a year in recent years – a failing that RBC says doesn’t apply to its own investable hedge-fund index

“There has been a great need in the market for an investable hedge fund index which does a better job of representing the performance of the asset class,” says Winson Ho, co-head of RBC Capital Markets’alternatives group and co-creator of the Hedge 250.

Ho says RBC has tried to address the causes of the underperformance of other investable indices its new Hedge 250. “As a result, we believe our index will be more successful in reflecting the performance of the non-investable indices.”

RBC Capital Markets is the corporate and investment banking arm of RBC Financial Group , the global brand name of the Royal Bank of Canada, a Toronto-based retail, commercial and investment bank. –FWR