A marketing challenge for all hedge fund marketers is how to benchmark performance of a hedge fund strategy.
We have all seen strategies that are allegedly non-correlated benchmark against the S&P or Russell 2k, the Barcleh AG (hat tip to Dealbreaker.com), however, how useful is this?
There are hedge fund indices out there, but these cover big strategy buckets that are not useful to offer insight in the performance of a more narrowly defined strategy.
To help manager provide more specific benchmarks, HFR recently added a 38 new hedge fund indices providing more granularity on strategies and regions. Does this solve selection, survivorship and weighting issues that affect all dbases…? certainly not, however it is much more helpful to have an HFRX Russia vs. HFRX Emerging Markets …or to benchmark your PIPEs fund against a HFRX Private ISSUE/Reg D Index vs. Equity long short…or a Currency only or Commodity only index …vs. a general Managed Futures index.
A list of the new indexes can be found on the HFR website.
In the new marketing reality, managers need to know how they stack up. Investors want to know too…right away. Help them if possibly. You should have a slide indicating that “here is our peer group” and “here is how we did against that peer group.” Be honest and save the investor some time. The HFR indices can help you do this efficiently.