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HFR World

The HFR Co-Investment Index is designed to represent the aggregated performance of a curated set of hedge fund managers that have historically offered Best Ideas and/or Co-Investment opportunities to investors. This episode of HFR World explores the application of this Index family and explains how investors and allocators might employ it.

Chapters

00:00 Introduction to the Co-Investment Index

00:53 Understanding Co-Investment Opportunities

02:58 Construction and Significance of the Index

04:37 Target Audience and Future Evolution

 

Podcast Transcript

S. Aneeqa Aqeel (00:00)

Welcome back to HFR World. We are here with President Ken Heinz to talk about HFR’s latest index, which is launching today, the Co-Investment index. Welcome back, Ken.

Ken (00:10)

Thanks for having me on.

S. Aneeqa Aqeel (00:11)

So let’s dive right in. What is the gap in the hedge fund index landscape that this new Co-Investment Index will fill and how does it differ from existing offerings?

Ken (00:23)

This is a super exciting day for us. This really culminates a long process of creating this index. This is totally unique in the industry and to understand why this index is unique. It’s helpful to talk about what co-investment and best idea opportunities look like. Many times a manager may be constrained by the limits of his fund as to how much of a percentage of capital they can deploy into a specific position. When a good opportunity arises for the fund, they may not be able to undertake the full investment required. And that’s when they offer a percentage stake in the project directly to an investor. A manager becomes a co-investor rather than the agent of the investing partner. As you can imagine, these equity partnerships and private credit arrangements are outside the realm of public data, than standard hedge fund performance reporting and pricing. The HFR Co-Investment Index offers investors and allocators a chance to monitor the performance: the best co-investment opportunities out there and gauge pricing. This is especially valuable for private credit and private equity investors.

S. Aneeqa Aqeel (01:38)

Okay great so how is the new index constructed and weighted?

Ken (01:43)

The Index contains over 100 positions contributed by 20 fund managers to date. It follows a two-step roll-up methodology where all positions are equally weighted to begin. Managers must meet HFR’s rigorous eligibility requirements and report data monthly to HFR.

S. Aneeqa Aqeel (02:01)

I see. So compared to the broad industry bellwether like the HFRI Fund Weighted Composite, this is a new offering in the specialty index series by HFR. Can you explain the significance of specialty indices and the performance that they track?

Ken (02:17)

Absolutely, Aneeqa. The hedge fund ecosystem as a whole offers investors a wealth of strategic approaches. On one hand, an investor looking for an indicator of the overall hedge fund industry will rely on the HFRI Fund Weighted Composite. As investors seek out more nuanced approaches, specialty indices become more important because they allow asset managers to price unique portfolio combinations. Indexing as a whole is an extremely sophisticated area of asset management and HFR continues to be the industry leader in providing meaningful relevant indices that provide market intelligence in the form of price and performance discovery.

S. Aneeqa Aqeel (02:58)

Okay, so what types of investors or allocators do you think will benefit most from this index?

Ken (03:04)

Yeah, that’s great. Any investor considering a co-investment opportunity, a private equity, a private credit investment would benefit from this index. This would include all large institutional investors, pension funds, family offices, sovereign wealth funds, and independent wealth managers as well.

S. Aneeqa Aqeel (03:23)

So this is completely new on the landscape. How do you see this index evolving?

Ken (03:30)

It’s going to be really fantastic over the next few months. There’s no upper limit on the number of opportunities or managers to include. We expect that as managers and investors appreciate the information value of this index family, this space will continue to grow. We anticipate adding in more eligible positions and managers, maintaining the high standard of reporting and data integrity that is essential to HFR.

S. Aneeqa Aqeel (03:55)

And I guess final question for you, is this an investible index?

Ken (03:59)

Yes, absolutely it is, like all HFR indices. The positions are currently available for investment at the manager level, most likely through a separate account structure, depending on the size of the investment.

S. Aneeqa Aqeel (04:11)

And just to be clear, how are we distributing it right now?

Ken (04:15)

Yeah, we expect most of our clients are going to want to add this Index to their existing index subscription. So it’s easy to do by reaching your HFR representative. If you don’t have an index license and you’d like to be able to access information or download the information, just reach out to HFR and we can easily get you access to the Index.

S. Aneeqa Aqeel (04:35)

Sounds great. Thank you so much for your time.

Ken (04:37)

Thanks for having me on.

 

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