JPMorgan Chase & Co. said on Monday that it is preparing to introduce an investable index replicating the returns of hedge funds, thus joining a growing number of investment bank rivals and asset managers in offering low-fee products as hedge fund alternatives.
The JPMorgan Alternative Beta Index, developed by the banking company's pensions advisory group in conjunction with three academics — Bill Fung and Narayan Naik of London Business School and David Hsieh from Duke University in North Carolina — analyzes the strategies and performance of hedge funds, funds of hedge funds, and commodity trading advisers. It then tries to recreate the funds' returns with liquid market instruments such as equity, bond, and commodity indexes.
The index product is to be launched early in the second quarter.
Similar so-called passive indexes designed to match the returns of funds of hedge funds have been developed by Goldman Sachs Group Inc. and Merrill Lynch & Co. Inc. Lars Jaeger, a Partners Group partner who is in charge of its alternative beta strategies program, estimates that replication products could account for 10% to 40% of hedge fund assets within 10 years.
An October report from Bank of New York Co. Inc. and Casey, Quirk & Associates predicted that institutional investors would triple their hedge fund holdings by 2010, to more than $1 trillion, and would account for more than 50% of the flows into hedge funds during the period.
