Hedge Fund Replication A Threat, Says TABB

Jan 24 2008 | 8:43am ET

In recent years, institutional investors have had a nearly insatiable appetite for alternative investments, a trend widely expected to continue for years, possibly even decades, to come. But a new report from the TABB Group throws cold water on that thesis, warning hedge funds and other active asset managers of the threat posed by index-based investing.

Report author Adam Sussman, research director at TABB, calls the appetite for index-based investments “nearly insatiable,” noting that active managers are already losing out on some $12 billion in management fees due to the $1 trillion U.S. investors have put into index-based products. That pain has so far been felt mostly by traditional asset managers, such as mutual funds, but Sussman cautions that hedge funds, which manage some $2 trillion globally, are not immune.

“There’s no slowing down the tide of indexing,” he said. “Pension plans need better ways to measure the performance of alternative asset managers. ETF, exchange-traded note and other index-based managers will need more products in the pipeline.”

Specifically, hedge fund replication strategies could put a serious crimp in hedge fund managers’ styles, costing them further billions in fees. Sussman says that by next year, some 70% of all pension plans will be utilizing customized benchmarks. And there are plenty available: He estimates that there are 48,256 possible indices versus 40,365 publicly-traded companies.


In Depth

Hedge Fund Selection: Sussex Partners’ Patrick Ghali Bullish On The Best Of The Best

Oct 2 2014 | 5:56am ET

Ten years ago, Patrick Ghali and Robin Nydes co-founded Sussex Partners with the...

Lifestyle

Griffin Donates $1M To Rauner's Illinois Gov. Campaign

Sep 22 2014 | 9:29am ET

Hedge fund billionaire Kenneth Griffin definitely has a dog in this fight. The Citadel...

Guest Contributor

Appraisal Ratio Key To Evaluating Hedge Funds And Other New Investments

Sep 29 2014 | 3:07pm ET

As a former finance professor Peter Hecht experiences heartburn every time he hears...

 

Videos

Editor's Note

    Must Attend Hedge Fund Charity Events For October

    Sep 30 2014 | 9:29am ET

    The crisp Autumnal days of October are upon us, and so are a few of the hedge fund industry’s favorite charitable events. If you have never been to Rocktoberfest, well, you are missing out. And for a quieter evening of sipping and socializing, stop by HFC’s Wine Soiree. Read more…

 

Futures Magazine

September 2014 Cover

High frequency market making

High frequency trading is not evil, it is not a conspiracy and it really is not new; it is the natural evolution of the professional trading community making markets, providing liquidity and hopefully...

The Alpha Pages

TAP July/August 2014 Cover

The Alpha Pages Interview: Senator Rand Paul

Senator Paul sat down in the debut series of the Alpha Pages Interview to discuss the broken tax code, regulation surrounding Bitcoin, and his plans for the 2016 Presidential election.