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Hedge Fund Database
Morgan Hedge Fund Database
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Hedge Fund Index - Methodology

Since the launch of the Morgan Hedge / Hedgeweb.net portal in November 2007 we publish monthly/yearly indices of all hedge fund / alternative investment categories and strategies that are represented in our database. The total index is simply the mean average of all hedge funds in the database. The calculations are based on the 8,500+ hedge funds / investment programs in in our database which have assets under management in excess of ?1m.

Calculation method

Our monthly indices are unweighted, mathematical mean averages of all active fund constituents in the index at that time. Funds with duplicate share classes, different currency denominations or onshore and offshore versions of the same fund or series are only included once in the index. We opted not to asset weight the indices because it is our view, that in the hedge funds universe the amount of assets under management depends on many factors. These are not necessarily correlated to the performance or the superiority of a fund in their respective segment. A weighting would also potentially discriminate or overrepresent funds with a particular currency denomination or domicile.

The indices are calculated on a daily basis and may change whenever new information (monthly data) becomes available.

To account for new funds that are added to our database, we include such funds with their respective historical performance records in the index calculation. Since our database grows and changes daily, leaving new funds out would misrepresent the average performance of all funds at this given time. This methodology also allows a more accurate comparison of performances relative to their peers.

The inclusion of new funds implies that the indices may be altered and even historical indices may be rebalanced as and when new data becomes available.

In order to limit survivorship bias in our indices we do not exclude funds that ceased to exist or who are not updating their performance any longer. Their complete historical performance will be included in the index calculation up to the point of their last reported return.

However we may in the future exclude funds and their complete performance record from inclusion in the index calculation if, for example, their data was found to be based on fraudulent statements or other factors that influenced the accurate representation of their performance in the past.

Unlike other indices we do not demand a minimum track record in order to be included in the index calculation.

Conlusion

The Morgan Hedge fund indices are not investable and may only be of limited use for historical research purposes since their composition changes continuously and they are rebalanced on a regular basis to reflect those changes.

The Morgan Hedge fund indices are designed to accurately represent the actual and historical average performance of hedge funds and investment programs in our database and of the hedge fund industry at that time as a whole. They also allow managers and investors to compare different catgeories and strategies at any given time and to put the results in perspective.

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