MSCI, Lyxor launch investable hedge fund index

The fund of hedge funds aims to represent the universe of alternative investments.

MSCI and Lyxor Asset Management have agreed to launch the MSCI Hedge Invest Index this summer. The index will consist of a diverse sample of hedge fund strategies and will contain funds that have weekly liquidity. MSCI will construct the index along the same lines of the hedge fund index database it introduced last year, using eligible funds from the Lyxor platform.

Simon Midgen, vice president and the Hedge Invest Index product manager at MSCI in London, says the launch of the database last year prompted demand by clients for an investable index. "The idea is that investors can replicate the returns of the index and use it as a basis for launching financial products," he says. "The index's objective is to represent the range of liquid hedge fund strategies, weighted as they exist in the broader universe of our database." The funds in the index must be liquid and have available capacity, he notes.

This effectively means Lyxor - the structured products subsidiary of Société Générale - is launching a fund of hedge funds that, using MSCI methodology, aims to represent the entire hedge fund universe. This is a tactic that S&P has already pursued, with New York's PlusFunds managing it.

MSCI and Lyxor seek to outdo their rivals by providing a more liquid and more representative index - and therefore one with lower aggregate volatility. They plan to introduce the Hedge Invest Index with about 60 constituent funds, more than double the number in S&P/PlusFunds, and grow this number over time. MSCI will identify what strategies must be added or removed, and Lyxor will identify and add funds to meet that requirement. The emphasis on funds with weekly liquidity is also important, Midgen says.

MSCI believes a variety of financial institutions should be interested in creating product on the back of the new index, including banks, brokers, prime brokers, fund managers and insurance companies.

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