Hedge Fund Indices for the Purpose of UCITS: Answers to the CESR Issues Paper

This document contains our participation in the consultation process initiated by the CESR on the eligibility of hedge fund indices for the purpose of UCITS (CESR/06-530)

Author(s) :

In order to be eligible, hedge fund indices have to be classified as financial indices according to the CESR's definition. The remainder of this document addresses the detailed questions put forward by the CESR (CESR/06-530) and gives EDHEC's views on these issues. In our replies to the detailed questions from the CESR, we argue that hedge fund indices should not be required to offer more controls and more transparency than existing financial indices such as stock market indices. Likewise, their construction should not be subjected to detailed rules for choosing constituents and implementing rebalancing and weighting mechanisms. In fact, there is no reason to discriminate against hedge fund index providers in this sense. Rejecting hedge fund indices seems to be inconsistent with the treatment of indices for other asset classes which face the same types of problems as hedge fund indices. A more promising approach would be to accept hedge fund indices in principle and to require a number of quality criteria, including: - Transparency of the method - A methodology that guarantees a high degree of representativity as well as precise classification of components (such as factor analysis) - Minimum liquidity of the indices - Investability of index components - Prohibition of practices such as backfilling - Information on risk factor exposure This alternative seems to be more convincing than to either reject hedge fund indices on the basis of their shortcomings or to make all hedge fund indices eligible without considering the specific quality of each index. Wide use of high quality hedge fund indices for investment and risk analysis would mark an important step towards proper information for investors on the level of risk in hedge fund products. As a complement to our answers to the questions raised by the CESR, please note our reply to the CESR published earlier (Amenc and Goltz, 2006).
Pdf
Hedge Fund Indices for the Purpose of UCITS: Answers to the CESR Issues Paper...
(-1.00 B)
Type : Position paper
Date : le 08/01/2007
Extra information : For more information, please contact Carolyn Essid, EDHEC Research and Development Directorate [ carolyn.essid@edhec-risk.edu] The contents of this paper do not necessarily reflect opinions shared by EDHEC Business School .
Research Cluster : Finance

See Also

EDHEC Global MBA OPEN DAY
News
- 16-02-2018
Looking to advance your career ?  Join the Global MBA team for an exclusive OPEN...
News
- 15-02-2018
  Choosing where to go to school is as important as choosing what to study. Your ability to gain knowledge and make the professional connections, that lead to success, are often...
IMPACT LEARNING: Blockchain, what is it and how will it change the world of finance?
News
- 14-02-2018
  The number of job postings on LinkedIn related to blockchain, cryptocurrency,...
The Rise of FakeInfra
News
- 14-02-2018
EDHECinfra, an EDHEC singaporean academic research organization for infrastructure...