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Lehman to Partner with on Indexes

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NEW YORK (–Lehman Brothers plans to jump in to the crowded hedge fund index space by offering both broad market benchmark and investable indexes through a partnership with

Lehman will build the indexes using hedge funds in the database. Lehman officials have not yet determined what styles the indexes will cover or how many indexes they will offer, said Steve Berkley, managing director and global head of Lehman’s Index Products division. Those details are expected to be worked out in time to begin offering the indexes to investors late in the second quarter of 2005, Mr. Berkley said.

Lehman will analyze the database of about 4,100 hedge funds and use quantitative, rules-based criteria similar to what it already uses when comparing portfolios with the U.S. Aggregate Index in order to determine what style category each fund fits in. Mr. Berkley said Lehman’s use of objective, quantitative criteria to minimize the survivorship and backfill biases present in other hedge fund indexes would be one way the firms hope to differentiate their indexes from others in the market.

“I’m not sure we’ll eliminate [the biases], but we are hoping to build a better mouse trap,” Mr. Berkley said.

The Lehman/ offering will join other indexes–some with investable components and others without–from Credit Suisse First Boston/Tremont,* Standard & Poor’s, Dow Jones Indexes, Hennessee Group LLC, Morgan Stanley Capital International, Edhec Business School, Hedge Fund Research Inc. and VanHedge, among others.

Mr. Berkley said Lehman’s reputation for producing high-quality indexes would help it stand out in the crowded field.

Anthony Gould, senior vice president in Lehman’s Quantitative Portfolio Strategies group added, “Our unique quantitative experience and risk management expertise will help our team identify the most appropriate style categorization for the hedge fund asset class. This approach should enable investors to gain a better understanding of the risk exposures embedded in hedge funds.” Chief Executive Donald C. Cacciapaglia said in a statement that the combination of his firm’s database with Lehman Brothers’ expertise would create “a new standard for investors.”

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Contact Bob Keane with questions or comments at: [email protected].


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