Credit Suisse/Tremont Hedge Fund Index New View on Hedge Fund Investing

Paul A Adams

23 October 2007

Credit Suisse Index has published an industry white paper, Gaining Efficient Hedge Fund Exposure through passive investing that gives a new perspective on hedge fund investing. According to the paper, hedge fund indexation is a cost efficient, transparent and diverse solution to capture the broad market performance of hedge funds. Credit Suisse says that passive investment strategies have become well established in the traditional asset management arena, and believe the same will hold true in the hedge fund market. The report finds that the core benefits offered by indexing — ease of management, capturing broad market performance, diversification, transparency and cost efficiency — directly address many of the challenges facing hedge fund investors. The report concludes that hedge fund indices provide a way of analysing returns by measuring performance against a peer universe of other hedge funds, providing a useful starting point for tracking alpha and beta against the general hedge fund market. And hedge fund indexing alleviates the challenges faced by a wide range of institutional investors, including small and mid-sized pensions, endowments and foundations, where identifying top managers requires a significant resource and time commitment, largely fuelled by a lack of transparency in the industry. By tracking an index’s returns, an index-based portfolio should not significantly underperform the broad market and indexing can help manage exposure risk by offering a high level of diversification.