The race to replicate
Hedge fund replication indexes were hailed as an effective means of obtaining exposure to hedge fund beta at a fraction of the cost. But how did the unproven indexes perform in the turmoil of August? By Peter Madigan
Hedge fund replication indexes have experienced a baptism of fire over the past few months. The relatively new products, most of which only began trading in the first half of this year, found themselves thrust into the worst period of market volatility since the near-collapse of Long-Term Capital Management in 1998.
Replication products are designed to match the beta returns of actively managed hedge funds through rules-based algorithms, but using only liquid cash and futures markets. Since these
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