Skip to main content
MENU
Subscribe
  • Subscribe
  • Account
  • LOGIN
  • Topics
    • Alternatives
    • Consultants
    • Coronavirus
    • Courts
    • Defined Contribution
    • ESG
    • ETFs
    • Hedge Funds
    • Industry Voices
    • Investing
    • Money Management
    • Opinion
    • Partner Content
    • Pension Funds
    • Private Equity
    • Real Estate
    • Russia-Ukraine War
    • SECURE Act 2.0
    • Special Reports
    • White Papers
  • Rankings & Awards
    • 1,000 Largest Retirement Plans
    • Top-Performing Managers
    • Largest Money Managers
    • DC Money Managers
    • DC Record Keepers
    • Largest Hedge Fund Managers
    • World's Largest Retirement Funds
    • Best Places to Work in Money Management
    • Excellence & Innovation Awards
    • WPS Innovation Awards
    • Eddy Awards
  • ETFs
    • Latest ETF News
    • Fund Screener
    • Education Center
    • Equities
    • Fixed Income
    • Commodities
    • Actively Managed
    • Alternatives
    • ESG Rated
  • ESG
    • Latest ESG News
    • The Institutional Investor’s Guide to ESG Investing
    • ESG Sustainability - Gaining Momentum
    • Climate Change: The Inescapable Opportunity
    • Impact Investing
    • 2022 ESG Investing Conference
    • ESG Rated ETFs
  • Defined Contribution
    • Latest DC News
    • DC Money Manager Rankings
    • DC Record Keeper Rankings
    • Innovations in DC
    • Trends in DC: Focus on Retirement Income
    • 2022 Defined Contribution East Conference
    • 2022 DC Investment Lineup Conference
  • Searches & Hires
    • Latest Searches & Hires News
    • Searches & Hires Database
    • RFPs
  • Performance Data
    • P&I Research Center
    • Earnings Tracker
    • Endowment Returns Tracker
    • Corporate Pension Contribution Tracker
    • Pension Fund Returns Tracker
    • Pension Risk Transfer Database
    • Future of Investments Research Series
    • Charts & Infographics
    • Polls
  • Careers
  • Events
    • View All Conferences
    • View All Webinars
    • 2022 Retirement Income Conference
    • 2022 Managing Pension Risk & Liabilities
    • 2022 WorldPensionSummit
Breadcrumb
  1. Home
  2. HEDGE FUNDS
September 13, 2019 10:17 AM

Passive trend's new milestone is to track 500 hedge funds

Bloomberg
  • Tweet
  • Share
  • Share
  • Email
  • More
    Reprints Print
    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 substrategy 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 are among the hedge funds in HFR's 500 index, according to Mr. 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 Mr. 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 hedge fund-of-funds business, but Mr. Barlow thinks it will instead tap into client money sitting on the sidelines.

    Investors such as state pensions funds are underallocated to the hedge fund industry by $200 billion in the U.S. and £24 billion ($30 billion) in the U.K., vs. 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," Mr. 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.

    Liquidity issue

    ASI said its liquidity requirements will help it avoid a mismatch in flows between the new fund and its underlying managers. If an underlying fund ends up shuttering or gating investors, the index will mark the position to the secondary market — in some cases, zero — and remove the fund from the index. Meanwhile, investors will have the option to keep their exposure to the offending fund — even if they redeem from the index product — to not miss out on any future recovery.

    In February, ASI started a liquid alternatives index fund that offers daily liquidity and tracks a 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.

    Related Articles
    Hedge funds produce a second quarter of positive returns
    Hedge fund assets jump to record high in second quarter — HFR
    Hedge fund managers less likely to use ESG in stock selection
    Recommended for You
    KenGriffin2022.jpg
    Ken Griffin moving Citadel's headquarters to Miami from Chicago
    Odey_i.jpg
    Crispin Odey hedge fund's 110% gain in 5 months wipes out years of losses
    Schonfeld hires first EMEA head as part of expansion
    Schonfeld hires first EMEA head as part of expansion
    Strong Demand Drivers Underpin Private Credit
    Sponsored Content: Strong Demand Drivers Underpin Private Credit

    Reader Poll

    June 6, 2022
    SEE MORE POLLS >
    Sponsored
    White Papers
    Nearing the finish line: Ideas on end-state investing for corporate DB plans
    The Meaning of "Portfolio Intelligence"
    Credit Indices: Closing the Fixed Income Evolutionary Gap
    Forever in Style: Benchmarking with the Morningstar® Broad Style Indexes℠
    Crossroads: Politics, Inflation, & Bonds
    Is there a mid-cap gap in your DC plan?
    View More
    Sponsored Content
    Partner Content
    The Industrialization of ESG Investment
    For institutional investors, ETFs can make meeting liquidity needs easier
    Gold: the most effective commodity investment
    2021 Investment Outlook | Investing Beyond the Pandemic: A Reset for Portfolios
    Ten ways retirement plan professionals add value to plan sponsors
    Gold: an efficient hedge
    View More
    E-MAIL NEWSLETTERS

    Sign up and get the best of News delivered straight to your email inbox, free of charge. Choose your news – we will deliver.

    Subscribe Today
    June 20, 2022 page one

    Get access to the news, research and analysis of events affecting the retirement and institutional money management businesses from a worldwide network of reporters and editors.

    Subscribe
    Connect With Us
    • RSS
    • Twitter
    • Facebook
    • LinkedIn

    Our Mission

    To consistently deliver news, research and analysis to the executives who manage the flow of funds in the institutional investment market.

    About Us

    Main Office
    685 Third Avenue
    Tenth Floor
    New York, NY 10017-4036

    Chicago Office
    130 E. Randolph St.
    Suite 3200
    Chicago, IL 60601

    Contact Us

    Careers at Crain

    About Pensions & Investments

     

    Advertising
    • Media Kit
    • P&I Content Solutions
    • P&I Careers | Post a Job
    • Reprints & Permissions
    Resources
    • Subscribe
    • Newsletters
    • FAQ
    • P&I Research Center
    • Site map
    • Staff Directory
    Legal
    • Privacy Policy
    • Terms and Conditions
    • Privacy Request
    Pensions & Investments
    Copyright © 1996-2022. Crain Communications, Inc. All Rights Reserved.
    • Topics
      • Alternatives
      • Consultants
      • Coronavirus
      • Courts
      • Defined Contribution
      • ESG
      • ETFs
      • Hedge Funds
      • Industry Voices
      • Investing
      • Money Management
      • Opinion
      • Partner Content
      • Pension Funds
      • Private Equity
      • Real Estate
      • Russia-Ukraine War
      • SECURE Act 2.0
      • Special Reports
      • White Papers
    • Rankings & Awards
      • 1,000 Largest Retirement Plans
      • Top-Performing Managers
      • Largest Money Managers
      • DC Money Managers
      • DC Record Keepers
      • Largest Hedge Fund Managers
      • World's Largest Retirement Funds
      • Best Places to Work in Money Management
      • Excellence & Innovation Awards
      • WPS Innovation Awards
      • Eddy Awards
    • ETFs
      • Latest ETF News
      • Fund Screener
      • Education Center
      • Equities
      • Fixed Income
      • Commodities
      • Actively Managed
      • Alternatives
      • ESG Rated
    • ESG
      • Latest ESG News
      • The Institutional Investor’s Guide to ESG Investing
      • ESG Sustainability - Gaining Momentum
      • Climate Change: The Inescapable Opportunity
      • Impact Investing
      • 2022 ESG Investing Conference
      • ESG Rated ETFs
    • Defined Contribution
      • Latest DC News
      • DC Money Manager Rankings
      • DC Record Keeper Rankings
      • Innovations in DC
      • Trends in DC: Focus on Retirement Income
      • 2022 Defined Contribution East Conference
      • 2022 DC Investment Lineup Conference
    • Searches & Hires
      • Latest Searches & Hires News
      • Searches & Hires Database
      • RFPs
    • Performance Data
      • P&I Research Center
      • Earnings Tracker
      • Endowment Returns Tracker
      • Corporate Pension Contribution Tracker
      • Pension Fund Returns Tracker
      • Pension Risk Transfer Database
      • Future of Investments Research Series
      • Charts & Infographics
      • Polls
    • Careers
    • Events
      • View All Conferences
      • View All Webinars
      • 2022 Retirement Income Conference
      • 2022 Managing Pension Risk & Liabilities
      • 2022 WorldPensionSummit