Indices

Institutional Equity Hedge Indexes

EQUAL WEIGHTED HEDGE FUND INDICES

ASSET WEIGHTED HEDGE FUND INDICES

SPECIALIST ALTERNATIVE FUND INDICES

INVESTIBLE BENCHMARK INDICES

METHODOLOGIES

INDEX PRESS RELEASES

The Institutional Indices are a set of equally weighted indices that are rebalanced at the beginning of each year, where constituents are selected annually In January (using the previous September’s data as to account for late reporting funds) and added to the index on January 1st. The indices are reconstituted annually therefore the constituents are selected once and do not change throughout the calendar year. It is base weighted at 100 as of 31 December 2007, does not contain duplicate funds and is denominated in USD. The indices’ returns and values for the most recent three months shall remain provisional until all funds have reported their returns.

Initial requirement for fund selection
Unique funds The 200 largest hedge funds are sampled but only ‘unique’ funds are selected for the index (no duplicate share classes, currency denominations, onshore and offshore versions of the same fund, series, etc.). Therefore, there is only one fund by firm. We select the largest fund by firm to be eligible for the index. Fund must have at least 24 consecutive months of performance data and AUM A fund must have a minimum of 24 consecutive months of track record to be selected for the index. They must report returns monthly. Low Volatility Index When compiling information for this index, the largest 50 funds are selected. The 10 funds with the highest volatility are removed from this sample. This is achieved by looking at the past 24-month monthly standard deviation. Multi-Strategy Index When selecting funds for the multi-strategy sleeve, all strategies are included apart from macro and Commodity Trading Advisers (CTA). Fund structures In selecting eligible funds, only those with incentive fee structures (i.e. performance fees) will be selected. Mutual funds, including those using a hedge fund strategy, are excluded from the index.

Initial requirement for fund selection

Unique funds

The 200 largest hedge funds are sampled but only ‘unique’ funds are selected for the index (no duplicate share classes, currency denominations, onshore and offshore versions of the same fund, series, etc.). Therefore, there is only one fund by firm. We select the largest fund by firm to be eligible for the index.

Fund must have at least 24 consecutive months of performance data and AUM

A fund must have a minimum of 24 consecutive months of track record to be selected for the index. They must report returns monthly.

Low Volatility Index

When compiling information for this index, the largest 50 funds are selected. The 10 funds with the highest volatility are removed from this sample. This is achieved by looking at the past 24-month monthly standard deviation.

Multi-Strategy Index

When selecting funds for the multi-strategy sleeve, all strategies are included apart from macro and Commodity Trading Advisers (CTA).

Fund structures

In selecting eligible funds, only those with incentive fee structures (i.e. performance fees) will be selected. Mutual funds, including those using a hedge fund strategy, are excluded from the index.

Index creation methodology
AUM requirement Fund AUM must be within the Top 200 in terms of size to be included in the final selection process of the index constituents. 50% buffer rule This rule is created to minimise the turnover rate of constituents per rebalancing. If the fund’s AUM falls outside the 50 largest AUM but within the 75 largest AUM, the fund will remain on the index the following year.

Index creation methodology

AUM requirement

Fund AUM must be within the Top 200 in terms of size to be included in the final selection process of the index constituents.

50% buffer rule

This rule is created to minimise the turnover rate of constituents per rebalancing. If the fund’s AUM falls outside the 50 largest AUM but within the 75 largest AUM, the fund will remain on the index the following year.

Other information of the index’s methodology
Monthly index values The monthly index values are fund-specific NAV weighted, where fund NAVs start at 100 each January rebalance. Fund NAVs grow or decline throughout the year based on monthly performance and reset to 100 each January rebalance. Return definition The returns reported in the database as well as being included and calculated for indices are monthly returns provided by hedge funds on a monthly basis. The returns are measured in terms of the gain/loss of the total portfolio values by performance (net of all fees) and net AUM inflow/outflow are excluded from it. Equal weighting The index is not asset-weighted. An overview of the average performance of hedge funds is provided, without attempting to highlight monthly inflows and unjustly overweigh the performance of certain funds due to good marketing staff or location in investor hot spots. Currency Equal weighting also encompasses funds denominated in different currencies, such as US dollar, Euro and Japanese yen. The index is purely an average of the performance of the constituent funds but calculated in a base currency.

Other information of the index’s methodology

Monthly index values

The monthly index values are fund-specific NAV weighted, where fund NAVs start at 100 each January rebalance. Fund NAVs grow or decline throughout the year based on monthly performance and reset to 100 each January rebalance.

Return definition

The returns reported in the database as well as being included and calculated for indices are monthly returns provided by hedge funds on a monthly basis. The returns are measured in terms of the gain/loss of the total portfolio values by performance (net of all fees) and net AUM inflow/outflow are excluded from it.

Equal weighting

The index is not asset-weighted. An overview of the average performance of hedge funds is provided, without attempting to highlight monthly inflows and unjustly overweigh the performance of certain funds due to good marketing staff or location in investor hot spots.

Currency

Equal weighting also encompasses funds denominated in different currencies, such as US dollar, Euro and Japanese yen. The index is purely an average of the performance of the constituent funds but calculated in a base currency.

Strategies
The Institutional Long Short Index In this index, the largest 40 managers identified as equity long short funds are selected for an equal-weighted index with one fund selected by firm. The fund selected per manager is by default the fund with the largest AUM. The Institutional Low Volatility Index In this index, the largest 40 managers are selected for an equal-weighted index with one fund selected by firm. During selection for this index, funds for the largest 50 managers identified as equity long short funds are selected. Then, the 10 entrants who demonstrate the most volatile returns (measured by 2-year annualised standard deviation) are disqualified. The fund selected per manager is by default the fund with the largest AUM. The Institutional Multi-strategy Index In this index, the largest 50 managers are selected for an equal-weighted index with one fund selected by firm. Funds which have a strategy specialisation of macro or CTA are excluded. The fund selected per manager is by default the fund with the largest AUM.

Strategies

The Institutional Long Short Index

In this index, the largest 40 managers identified as equity long short funds are selected for an equal-weighted index with one fund selected by firm. The fund selected per manager is by default the fund with the largest AUM.

The Institutional Low Volatility Index

In this index, the largest 40 managers are selected for an equal-weighted index with one fund selected by firm. During selection for this index, funds for the largest 50 managers identified as equity long short funds are selected. Then, the 10 entrants who demonstrate the most volatile returns (measured by 2-year annualised standard deviation) are disqualified. The fund selected per manager is by default the fund with the largest AUM.

The Institutional Multi-strategy Index

In this index, the largest 50 managers are selected for an equal-weighted index with one fund selected by firm. Funds which have a strategy specialisation of macro or CTA are excluded. The fund selected per manager is by default the fund with the largest AUM.

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