BarCap Introduces New Indices With Replication Methodology For Hedge Fund Universe

Barclays Capital, the investment banking division of Barclays Bank PLC, has launched the Long Barclays Alternatives Replication (LBAR) Index and the Shortable Barclays Alternatives Replication (SBAR) Index. LBAR closely tracks the global hedge fund industry, including funds that are no

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Barclays Capital, the investment banking division of Barclays Bank PLC, has launched the Long Barclays Alternatives Replication (LBAR) Index and the Shortable Barclays Alternatives Replication (SBAR) Index.

LBAR closely tracks the global hedge fund industry, including funds that are no longer investable. In 2008, a period which has been one of the most volatile and challenging that the hedge funds universe has seen, LBAR was the most accurate tracker of the alternatives industry.

SBAR enables investors to short market exposure to the hedge fund universe. In the current climate this can assist clients seeking to maintain the current value of illiquid positions or express a bearish (short) view.

LBAR and SBAR are liquid, transparent and cost-efficient. They provide linear and non-linear exposure to asset classes including equities, credit, rates, FX and commodities, giving appropriate consideration to geographic and other market differences.

The LBAR methodology was developed by the Quantitative Portfolio Strategy team at Lehman Brothers (now part of Barclays Capital Research) and has been funded since October 2007, with its performance publicly available for scrutiny and verification.

LBAR has now been re-launched by Barclays Capital’s dedicated Fund-Linked Derivatives team along with the newly developed SBAR.

“The hedge fund industry is changing – transparency and liquidity are increasingly important for institutional clients and investment managers,” says Frank Gerhard, head of Fund-Linked Derivatives Strategy, Barclays Capital. “We can now deliver replication strategies in a range of formats to augment or manage direct fund exposures, and provide daily liquidity.”

“Hedge funds’ flexible investment mandates, minimal disclosure requirements, and use of leverage, short selling, derivatives and illiquid securities present serious challenges for any synthetic replication strategy,” says Lev Dynkin, head of Quantitative Portfolio Strategy.

“The replication methodology underlying the Barclays Alternatives Replicators includes several innovations such as reconstitution of incentive fees, use of non-linear instruments and a dynamic optimisation algorithm.”

L.D.

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