The alternative assets group of Toronto-based RBC Capital Markets has launched a diversified hedge fund index comprised of 250 funds, which is about six times larger than other investable hedge fund indexes, according to the company.
The 250 funds represent about 20% of all hedge fund assets under management out of a total universe of 4,700 funds, including many funds that are now closed to new investors or have lock-up requirements - making it one of the broadest indexes representing the industry, said Winson Ho, co-head of the division and co-creator of the index.
RBC's alternative assets division, a leading provider of structured products for hedge funds, has capitalized on its "significant experience and relationships in the industry," Ho said, to create this broad index.
"There has been a great need in the market for a hedge fund index that does a better job of representing the performance of the asset class," he added.
Over the past several years, the performance of investable hedge fund indexes has lagged non-investable indexes by about five percentage points.
"This underperformance can be attributed to a number of factors which we sought to address in our development of the RBC Hedge 250 Index," Ho said. One such factor, he noted, is that other hedge fund indexes also include separately managed accounts because of their liquidity.
RBC believes the index will become a valuable benchmark and plans to introduce other, privately placed products based on it distributed through outside partners.
Since RBC formed the index in July, it has averaged a 9% return, compared to the 5% that other investable indexes and the 10% that non-investable indexes have returned.