SPA Conference: Hedge fund-replicating indexes might be wave of the future, panel says

By Sheri Kasprzak

New York, Oct. 15 - Indexes that replicate hedge funds might be a way for investors to access a hedge fund-like product without actually having a product linked to a hedge fund, a panel Monday at the Third Annual Structured Products Association Summit in New York said.

Hedge fund-replicating indexes track the movement of a particular hedge fund and that may make it easier for investors to access those products, said Marcel Herbst of Harcourt Alternatives. At least, he said, they make sense academically.

"We don't think it's a bad idea, these replicable indices," Herbst said. "It makes a lot of sense academically. The idea is to develop something that makes sense and performs [as well]."

Regulatory and other complications make it difficult to link products directly to hedge funds.

David Krein of DTB Capital pointed out that there are replication strategies already being carried out, like having a basket of 10 to 12 exchange-traded funds. Products like these go some way towards the ultimate goal by delivering hedge funds-like performance, although not as close as an index would.

These types of structures, Krein noted, do have lower volatility and don't have the infrastructure that "best-of-breed" products might have.

"The replication vehicle is relatively new and has a degree of tracking error," Krein added.

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