Nomura and Hedge Fund Research launch replication indexes

Investment bank Nomura and data provider Hedge Fund Research have announced the launch of two hedge fund replication indexes.

The HFRq Hedge Fund Replication Long Index and the HFRq Hedge Fund Replication Short Index were developed in collaboration with sub-adviser and quantitative think tank QES.

The indexes are designed to approximate hedge fund returns using factor analysis and a proprietary modular methodology. Using access to daily performance and risk sensitivity data from Hedge Fund Research the HFRq maximizes the correlation to the HFRI Fund Weighted Composite Index. The HFRq uses exchange traded futures contracts resulting in daily liquidity and transparency and daily pricing.

The indexes are designed to capture the dynamics of hedge fund investing at an aggregate industry level and a granular portfolio level. This is achieved by using four distinct modules that generate an aggregate replication portfolio mimicking hedge fund returns, even during volatile market scenarios.

Mohamed Yangui, managing director and head of the product development and structuring group at Nomura, said: "We are confident that this index will establish itself as one of the leaders in the broader replication space. It uses a unique and proprietary replication methodology that combines backward looking replication tools with forward looking analysis. It is designed to capture the risk profile of how managers implement their strategies and therefore reduces the reliance on traditional regression methods and the usual problems associated with these."

Exposure to the HFRq indexes is obtained through products traded via Nomura and both indexes are published on Bloomberg.