Standard & Poor's Hedge Fund Index

Abstract

In this case study, the authors provide a structural overview of the S&P Hedge Fund Index. Among the characteristics they explore are its reliability and timeliness in reporting numbers and transparency of rules. The extensive due diligence process that involves the verification of management experience, investment policy, risk management policy, and operational capabilities is discussed. They also discuss techniques used for fund selection such as stratified sampling and bootstrap simulation, which lead to the conclusion that a portfolio of 30 to 40 hedge funds represents the risk/return characteristics of broader portfolios of hedge funds.