Index lends its approach and reassure customers

Are "hedge funds" indices indices like the others, which may be included prominently in the Ucits III so-called European Investment Fund through derivative products

The Committee of European regulators (CESR for Committee of European Securities Regulators) comes to take the pulse of the industry on this topical issue closing its phase of consultation on this topic. Early in 2006, it had already considered that the difference in the real estate indices or raw materials, indices of Fund so-called arbitration "investable" (composed of Fund of arbitration "open" in which investors can place their money) could not be regarded as genuine financial indices and thus result in products that could be used by the funds coordinated European. The reason Failliraient indices of "hedge funds" three requirements and features essential to any good index, namely the representativeness, transparency and diversification of because of some bias (read below).

European regulators Committee however given the time to see more clear by collecting the views of stakeholders. At the sight of the tone of the first documents of work published so far, that prejudice not certainly the final decision will be made in May 2007, the case seems however poorly engaged indices "hedge funds".

If they "were eligible without conditions to the coordinated funds arise then a problem of regulatory arbitrage because the funds of hedge funds are not", said Hubert Reynier, Deputy Secretary-General of the authority of des marchés financiers (AMF) in charge of regulation and international affairs.

A priori ideological

For François Duc, head of the Union bancaire PRIVE Alternative Investments risk management, this inclusion would "mean in practice that any funds of funds or managed accounts Fund may be distributed to individual investors." "It would be sufficient to fund of funds managers enact some systematic arbitrary rules of management of their portfolio of hedge funds, without any need for representativeness, and to appoint indices". It is indeed one of the arguments which is in the "anti". Investable indices would be, in fact, funds of funds disguised using the designation of index for purposes of marketing and practicing shamelessly active management. That is why they eliminate and choose to "hedge funds" of their portfolio, as are funds of funds.

"Alternative management is not a matter of priority alignment to the European Commission, it felt that it is still a management concentrated in London and which offers offshore products to savvy customers", says Hubert Reynier.

Others go further (read here), considering that Europe is evidence, on this issue, an a priori ideological against alternative management and refuses its democratization to the general public.

A democratization found to be bearing risks for limited benefits and can be enhanced by the development of investable indices of "hedge funds". The latter, which currently represent around 12 billion dollars in stock, are little under 400 to 500 billion dollars invested in the hedge. "The debate on hedge funds investable indices is already quite old, said François Duc.". As of 2003, institutional investors had fervently claimed such instruments cradling illusions about their ability to be properly representative of pure strategies of alternative management and average performance of a Manager. Beliefs that persist.

In the event of underperformance, an institutional will be less blamed for having purchased an index as a Fund of funds given. Index lends its approach and reassure customers. Hence his pressing requests for alternative index management. Only today, "it is not certain that it is feasible and practicable in good conditions", Gilles Rouchié, CEO of UFG Alteram insists.

A case-by-case approach

If it was, many funds of funds have also a lot of attention to. Why pay the substantial costs of the hedge, sometimes for very questionable value, while it would be sufficient to buy a "hedge funds" index as it buys a CAC 40 index, at a cost much lower At the time of their appearance, in the early 2000s, "hedge funds" investable indices had raised fears on the part of the funds of funds, who felt this potentially devastating competition. It nothing was for the moment because of the disappointing performance of these indices.

But tomorrow "The question of eligibility or not hedge funds to funds Ucits 3 indices is not a major stake in financial terms, in both the industry European management alternative for a group like ours, where the index on hedge funds products represent today a fraction of our assets under management, noted Alain Dubois, President of Lyxor AM.". However, the underlying problem in this regulatory debate is not without interest. So, can be excluded a priori indices of hedge funds of funds coordinated while others, such as raw materials, are admitted and yet pose as many problems We do not believe this. It seems to us that hedge funds indices should be eligible if they meet certain rules. A case by case approach seems more appropriate than a position of principle.