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Hedge Fund Replication Index

Another day, another hedge fund index launch; today's launch, however, is some thing slightly different. The Hedge Fund Replication Index calculates the average return of all the replication providers in the market, and provides hedge fund investors with a benchmark comparison to see if their hedge funds are really delivering alpha. Initial results would appear to back up the scientific claims that the majority of hedge fund returns are beta driven and can be replicated in a liquid fashion. According to the publisher of the Index,, the Hedge Fund Replication Index is up 7.7% this year to end September, and lost 13.8% last year. The replicators would appear to be struggling to keep up with the single manager hedge funds, as represented by
the HFRI Fund Weighted Composite Index, which is up 17.21% for the year. However, in 2008 this same index lost substantially more than the replicators, ending the year down 19.03%. The picture looks even better for the replicators once you compare them against investable products, as they are only slightly trailing the HFRI Fund of Funds Composite Index (up 9.75%.YTD) and the HFRX Global Hedge Fund Index (11.00%) in 2009. Last year, these indices lost 21.37% and 23.25% respectively, over 50% more than the replicators. The jury is still out, but so far one would have to agree with the scientists and conclude that the majority of the average hedge fund performance can be replicated, without the liquidity and transparency risk of direct investment in hedge funds.

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