One interesting development in hedge funds is the appeal of hedge fund vehicles pegged to an index. Called investable hedge fund indices, these vehicles resemble a fund of funds, but instead just track a hedge fund index. A fund of funds manager selects a pool of hedge funds using his own research. Investable hedge fund indices already represent several billion dollars of investment -- a drop of water in the $1 trillion hedge fund universe, but it's growing. Lehman Brothers ( LEH) is readying its Lehman Brothers/HFN Global Hedge Fund Index for launch in the first quarter. Subindices tracking specific hedge fund strategies will later follow. The investment bank known for its bond benchmarks partnered in the index with HedgeFund.net, a hedge fund database provider tracking more than 5,000 funds. Most of the existing investable hedge funds are a venture between a fund manager and an index or database provider. Hedge fund investors, including pensions, love the indices, much the way that mutual fund investors love index funds and ETFs. "It should pan out the same way," says Donald Cacciapaglia, chairman and CEO of Channel Capital Group, the company that produces HedgeFund.net. Understanding why is easy. The indices don't charge a 20% management fee like their hedge fund counterparts, and investors don't need to put in $1 million as a minimum investment. In fact, some of the indices, such as the RydexFund, which tracks the S&P Hedge Fund Index, only require a $25,000 investment. The Lehman Brothers Index is likely to follow that route, Cacciapaglia says. Fund of funds managers who spend their time and talent tracking the best managers for their clients don't really appreciate the indices. They tend to believe that only mediocre managers enter the index platforms. What remains to be seen is whether investors will share their point of view.
Other hedge fund indices are the CSFB/Tremont Investable Hedge Fund Index, the HFRI Index and the MSCI Hedge Invest Index.
Elsewhere, Arden Asset Management, the $10 billion fund of funds, got Natalie Birrell, the former COO of Deutsche Bank Absolute Return Strategies, to join its lineup. At Arden, she'll work closely with founder Averell Mortimer to enhance risk management, strategic planning, portfolio operations and investment processes.
no one has been willing to join us as a co-plaintiff. One hedge fund manager even urged us to discard our computer in case some thin-skinned bureaucrat might seek to confiscate our emails. For the record, our computer is still in operation." The S&P Hedge Fund Index gained 0.97% last month -- not a huge increase, but it was the fifth consecutive month of gains.
The S&P Event-Driven Index was up 1.08% in September, not surprising considering the gains in energy and merger activity. More interesting was the 0.52% monthly gain in the S&P Arbitrage Index due to a stabilization of the convertible arbitrage sector. It was about time. The third quarter in convertible arbitrage was the first positive quarter since last year's fourth quarter. Managers took profits in short bond positions both in Europe and the U.S. according to the S&P. Finally, the rise of the S&P Directional/Tactical Index, which posted a 1.31% gain last month, was the best-performing strategy for September. Directional managers take open positions, either long or short, on the belief that they can predict the price of a security.