EDHEC Alternative Indexes

EDHEC Alternative Indexes - The Summer Palace, Beijing, China. The Long Corridor was first built in 1750, when the Qianlong Emperor commissioned work to convert the area into an imperial garden. The corridor was constructed so that the emperor's mother could enjoy a walk through the gardens protected from the elements.
EDHEC Alternative Indexes

Alternative investment strategies are often referred to as “absolute return” strategies. One could consequently argue that developing hedge fund indexes does not make sense.

However, recent research has highlighted that the exposure of hedge funds to multiple risk sources (volatility, default, etc.) and the dynamic character of their management make monoand multilinear factor models inadequate for evaluating their performance.

A pragmatic alternative to developing factor models involves comparing the return of a given fund to that of a portfolio of funds following the same strategy (peer benchmarking), or to that of a representative index (index benchmarking).

The difficulties related to the development of indexes, which are already evident in the traditional universe, are exacerbated in the alternative investment world. Finding a benchmark that is representative of a particular management universe is not a trivial problem.

In response to the needs of investors, the EDHEC Risk and Asset Management Research Center has proposed an original solution by constructing an “index of indexes,” the EDHEC Alternative Indexes.

The aim of the methodology used to construct this index of indexes (see Amenc and Martellini, 2002) was to construct a benchmark which is more representative and stable than the indexes provided by Altvest, CSFB/Tremont, EACM, Hennessee, HF Net, HFR, MAR, Van Hedge, Zurich, etc. (the competing indexes). As a noncommercial initiative and in order to facilitate access. EDHEC has received support from Alteram for the promotion of its alternative indexes.