GlobeOp Indices to Boost Transparency of Hedge Fund Flows

GlobeOp Financial Services announced the launch of two indices designed to track monthly capital flows at nearly 10 percent of hedge funds worldwide.

The launch comes as part of a plan to roll out a number of indices this year that will track a range of factors impacting hedge funds, including performance measurement and fund movement, the company said. GlobeOp, which provides administration services to hedge funds, says it will compile monthly reports at the first two indices based on data collected from its clients.

"There's really very few, if any, reliable measures of the hedge fund market," GlobeOp Chief Executive Hans Hufschmid says of the launch. "People try to build it based on manager reports which are flawed because the managers don't always report. When they lose money, they tend not to report, which leads to the overstating of performance sometimes."

On the eighth business day of the month, the company says the GlobeOp Capital Movement Index will report on money moving in and out of hedge funds. Hufschmid contends that since GlobeOp services between 8 and 10 percent of the world's hedge funds, this data will give a statistically significant view of the entire industry.

"While it can certainly be the case that we show a negative number when the overall market is positive, over time, we will track the market closely," Hufschmid says.

Earlier this week, the index showed that flows tracked by the GlobeOp Capital Movement index were negative 0.05 percent in April. On the fifteenth day of each month, the GlobeOp Forward Redemption Indicator will give a snapshot of redemption notifications to hedge funds. The index will be calculated by taking the number of redemption notices GlobeOp receives from clients, and divide it by the number of assets the firm has under administration.

In March, the index revealed that redemptions among GlobeOp clients fell 0.1 percent. The company says this figure shows investor sentiment generally remained calm over the last month despite crises in the Middle East and Japan.

Redemption notices are usually given by investors between a month and 90 days before their funds are pulled out, GlobeOp notes.

"The redemption index is much more of a sentiment indicator, because unlike subscriptions, you have to give notice on redemptions," Hufschmid says. "We get those notices for our clients and put it into an indicator."

Meanwhile, the research community - which has historically been handicapped by a lack of reliable data about hedge fund performance - stands to benefit from the new indices as well, according to London Business School finance professor William Fung.

"Central to hedge fund research is the relationship between performance and capital flow," Fung said in a statement. "Understanding this relationship is key to answering important questions such as the effect of liquidity in hedge fund investing and the interplay between capital and future performance."

As the Senior Editor of Advanced Trading, Justin Grant plays a key role in steering the magazine's coverage of the latest issues affecting the buy-side trading community. Since joining Advanced Trading in 2010, Grant's news analysis has touched on everything from the latest ... View Full Bio