HFRI Distressed Index

HFRI Distressed Index - Isis
HFRI Distressed Index

The HFRI (Hedge Fund Research Index) Distressed Index is an equally weighted performance index of the distressed hedge funds. To be included in this index, the hedge funds must fulfill the following criteria:
  • Report monthly returns to HFRI
  • Report net of all fees returns
  • Report assets in USD

There is no required asset-size minimum to be included in the HFRI Distressed Index; the names of the individual hedge funds are not disclosed and there is no requirement for a certain track record length to be part of the index. A fund that does not report any longer will have its past returns kept in the index but will not be used in the future (possible survivorship bias).

There is an advantage in terms of return in holding companies that are either near bankruptcy or have problems paying their debt. The distressed managers focus on healthy underlying business or fraud. Companies that are part of an industry-wide malaise and/or feature excess capacity are no candidates. This is due to uncertainty of the company’s future. Some people call it a “liquidity” premium.