NEW YORK (HedgeWorld.com)–Now that several investable hedge fund indexes have become available, exchange-traded vehicles that track such measures might not be far off, despite the complexity of fitting hedge funds into an ETF format.
“That is just a matter of time,” said Stephen Jupp, who works on the Credit Suisse First Boston/Tremont hedge fund index. He explained that the liquidity issue can be solved, possibly by using derivatives and structured products. “If your index is big enough, I’d imagine you could take that liquidity risk,” he added.
ETFs, baskets of securities that mimic the performance of a bond or stock index, are bought and sold throughout the day. These take different forms, and regulations probably will prevent hedge fund versions of some popular types of ETFs such as Spiders, said Peter Roffman, from Standard and Poor’s hedge fund index group.
“It might be a challenge for that particular format,” he said. “But over time, there could be exchange-trades hedge fund indexes in other formats.”
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“There will always be slight differences between traditional ETFs and hedge fund-based products,” said Simon Midgen from Morgan Stanley Capital International. “ETFs based on shares have intra-day liquidity–that is a long way from the hedge fund world.”
However, investable indexes already have gone well beyond the industry’s typical quarterly or monthly redemption policies. For example, MSCI offers weekly liquidity. Both MSCI and S&P provide indexes for large numbers of conventional ETFs, and a hedge fund version is an obvious extension of this type of vehicle.