A Reply to the CESR Recommendations on the Eligibility of Hedge Fund Indices for Investment of UCITS

In this paper, the authors examine the question of the eligibility of hedge fund indices as financial instruments for use by European investment funds.

Author(s):

Noel Amenc

Professor of Finance and Director of the EDHEC Risk and Asset Management Research Centre

Felix Goltz

Senior Research Engineer at the EDHEC Risk and Asset Management Research Centre

Following recent advice given to the European Commission by the Committee of European Securities Regulators (CESR), it was decided to suspend such eligibility for a period of twelve months. The authors review this decision and comment on the problems identified by the CESR in relation to hedge fund indices. They go on to provide an analysis of these indices in consideration of three of the general criteria proposed by the CESR for financial indices: representativeness, transparency and diversification. The problems surrounding each criterion are addressed and it is shown that the reservations of the CESR in relation to hedge fund indices are not always well-founded. The problem of representativeness, for example, is a problem that is also observed in the case of equity style indices. With regard to diversification, the authors suggest that confusion between the terms benchmark' and index' leads to misguided criticism of a hedge fund index's inadequacy to fulfil this requirement. Finally, possible solutions such as managed account platforms for higher transparency are proposed to address the problems related to the three criteria.

Type: Position paper
Date: le 04/12/2006
Research Cluster : Finance

See Also

Financial Times ranks EDHEC Executive Education among the Top 10 worldwide
News
- 23-05-2022
EDHEC Business School’s executive education offers rank among the Top 10 globally...
EDHEC partners with VIVATECH 2022 and offers 400 tickets to EDHEC students
News
- 20-05-2022
EDHEC is once again a partner of the unmissable tech event of the year, Viva Technology...
(Invitation) Inauguration of the Management in Innovative Health Chair - May 30, 2022 in Paris
News
- 17-05-2022
Emmanuel Métais, Dean of EDHEC Business School and Christophe Durand, General Manager...
News
- 10-05-2022
Live on YouTube !