For $5 Million, You Can Passively Invest in an Index of 500 hedge Funds

September 16, 2019 | Hedge Funds
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Deep-pocketed investors unwilling to bother with hedge fund selection can now invest in a fund tracking a hedge fund index

Passive investing is making headlines on Monday. Aberdeen Standard Investments (ASI) and Hedge Fund Research Inc (HFR) are teaming up to launch an innovative new product.

It’s a fund that will track HFR’s 500 Index. The index comprises the largest 500 funds that report to the HFR Database and offer quarterly liquidity or better.

Passive investing comes to hedge funds

So far, hedge fund assets were not available for passive investing via an index. The ASI-HFR fund will change that when it starts to trade in January.

Investors must pony up a minimum of $5 million to qualify for the fund. However, investment or redemption is only allowed every quarter.

Further, investors will pay a fee for the ASI-HFR fund as well as a management-cum-performance fee of the underlying hedge funds.

In return, investors will be free of the costs of hedge fund selection, which could either be external or internal.

Attractive to institutions, too

According to a study by ASI, institutions such as pensions are under-weight in hedge fund investments compared to allocation targets. For the USA, this shortfall could be as high as $200 billion, and for the UK, $30 billion.

The passive ASI-HFR hedge fund tracker fund could, therefore, be attractive to these investors.

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