Passive Frenzy's New Milestone Is to Track 500 Hedge Funds

#Lifestyle Wealth


(Bloomberg) -- The passive investing wave is coming to hedge funds.

Aberdeen Standard Investments and Hedge Fund Research Inc. are charting new territory by creating a fund that tracks HFR’s broad index of 500 hedge funds.

The product will allow wealthy investors and institutions to play in the rarefied world of hedge funds without having to kick their tires or deal with the egos.

“For the first time you can have access to the space without having the internal costs of selecting managers or paying a premium for someone to externally handle that manager-selection alpha for you,” said Russell Barlow, global head of alternative strategies at ASI, which oversees about $670 billion. “You can just buy the passive version.”

The development is a testament to just how far-reaching index funds have become, touching almost every asset class. And it comes as stock pickers were dealt a big blow Wednesday as assets in U.S. index-based equity mutual funds and exchange-traded funds topped those in active stock funds for the first time in August.

$5 Million Buy-In

The new ASI-HFR product will allow clients to passively invest in hundreds of actual flagship hedge funds, as opposed to separately managed or liquid alternative versions of them, said HFR founder Joe Nicholas. The fund is expected to start trading in January, along with 30 strategy and sub-strategy index funds.

The hedge funds in the new, underlying index are being selected for their liquidity -- quarterly or better -- and size. They are required to report their performance and assets under management monthly to HFR. Investors will be able to subscribe or redeem from the index fund quarterly.

Chilton Investment Co., Mariner Investment Group, and Man Group Plc are among the hedge funds in HFR’s 500 index, according to Nicholas.

Investors will need to put up a minimum of $5 million to get into the fund. They’ll also pay a fee for the product as well as blended management and performance fees for the underlying hedge funds. Some of these charges are being determined. The index’s performance will be net of the hedge fund managers’ fees.

Fee Structure

The management fee is likely to be a fraction of what fund-of-funds charge, according to Barlow. That averages 1.17%, Preqin data show. The HFR’s benchmark 500 index fund has an average management fee of 1.4% and the average incentive fee of 17%.

If successful, the index fund could prove another challenge for the beleaguered fund-of-hedge funds industry, which has suffered 11 straight years of net withdrawals. Investors have abandoned these middlemen due to paltry performance and the extra layer of fees they charge. Industry assets totaled $643 billion in June, down from a peak of almost $800 billion in 2007, according to HFR.

The risk for ASI is that the new fund could cannibalize its own fund-of-hedge funds business, but Barlow thinks it will instead tap into client money sitting on the sidelines.

Investors such as state pensions funds are under-allocated to the hedge fund industry by $200 billion in the U.S. and 24 billion pounds ($30 billion) in the U.K., versus their target allocations, according to ASI’s estimates. The index fund is expected to capture some of those players who, due to the constraints associated with hedge fund investing, prefer to invest passively.

Bleeding Assets

“There’s an enormous component of allocators to alternatives that are underweight the investment class,” Barlow said. “It boils down to a combination of a lack of liquidity, high fees, transparency and performance.”

Active money managers have been bleeding assets in recent years as clients rebelled against high fees and disappointing returns, a trend that prompted Moody’s Investors Service to predict that index funds will overtake active management in the U.S. by 2021.

Michael Burry, the hero of Michael Lewis’s book “The Big Short,” warned last week that passive fund inflows are inflating a new stock and bond bubble that is bound to blow up as money linked to fund indexes exceeds amounts traded in individual stocks.


separate HFR index of about 180 UCITS funds. The European Union’s UCITS directive allows such funds to employ some hedge-fund techniques, such as using leverage or shorting. They’re also more affordable to retail investors than a typical hedge fund.

A handful of other UCITS index funds tracking watered-down versions of hedge fund manager strategies, or with a smaller constituent of funds, have existed at one time or another.

(Updates with hedge funds in the 500 index in the eighth paragraph.)

To contact the reporter on this story:
Katia Porzecanski in New York at [email protected]

To contact the editors responsible for this story:
Alan Mirabella at [email protected]
Josh Friedman

https://www.wealthmanagement.com/alternative-investments/passive-frenzys-new-milestone-track-500-hedge-funds To Find More Information, Go To https://is.gd/saubiodigital And Look Up Any Topic

Please follow and like us: Share This Post




Take a look at our comprehensive guide to the best and most popular information ebooks and products available today on Detoxing, Colon Cleansing, Weight Loss and Dating and Romance. They are all in one spot, easy to find and compere to make a quick selection for the product that best fits your needs or wants.

So browse through a category and make your  preferred selection and come back here to read  more choice articles and get a few more helpful tips on ways to help your enhancement.



Detoxing Reviews

Best Body Detoxification Guides & reviews





Colon Cleanse Reviews

Best Colon Cleanse Guides & Reviews





Weight Loss Ebook Reviews

Weight loss products really work! Click here





Dating and Romance Ebook Reviews

Looking for Dating Guides? Click here





Free Traffic System - Increase Targeted Website Traffic with Free Unlimited One Way Links

As an Amazon Associate I earn from qualifying purchases. “saubiosaubiosuccess.com is a participant in third party affiliate and advertising programs; The Amazon Services LLC Associates Program, and other affiliate advertising programs are designed to provide a means for sites to earn advertising fees and commissions by advertising and linking to products on other sites and on Amazon.com. Amazon and the Amazon logo are trademarks of Amazon.com, Inc, or its affiliates.”

Leave a Reply

Your email address will not be published. Required fields are marked *


Saubio's Guide & Tools

As an Amazon Associate I earn from qualifying purchases. “saubiosaubiosuccess.com is a participant in third party affiliate and advertising programs; The Amazon Services LLC Associates Program, and other affiliate advertising programs are designed to provide a means for sites to earn advertising fees and commissions by advertising and linking to products on other sites and on Amazon.com. Amazon and the Amazon logo are trademarks of Amazon.com, Inc, or its affiliates.”