Got an email on the following: Launch of New ETN Offers a Liquid Alternative to Hedge Fund Investing with Lower Fees Credit Suisse recently announced that for the first time, U.S. investors will be able to access the Credit Suisse/Tremont Long/Short Equity Hedge Fund Index strategy through an exchange-traded product. The new Credit Suisse Long/Short Liquid Index (Net) ETN (NYSE Arca: CSLS) (the “CSLS ETN”) is designed to provide a more liquid alternative to hedge fund investing with lower fees. The Credit Suisse Long/Short Liquid Index (Net) seeks to replicate the performance of the Credit Suisse/Tremont Long/Short Equity Hedge Fund Index by tracking the performance of non-hedge fund, transparent market measures. The CSLS ETN is designed to provide lower volatility than traditional asset classes with equity-linked returns. Plus, the CSLS ETN gives investors the freedom to buy and sell openly on an exchange. By providing real-time pricing, intraday liquidity and portfolio transparency, the CSLS ETN represents the next generation of alternative investing. *********************************** Can anyone give me some insight into how “The Credit Suisse Long/Short Liquid Index (Net) seeks to replicate the performance of the Credit Suisse/Tremont Long/Short Equity Hedge Fund Index by tracking the performance of non-hedge fund, transparent market measures” works?
Most hedge fund strategies can be replicated with baskets of 7-8 instruments. The process was detailed in the FRM curriculum. It’s essentially a regression using instruments tracking the Dollar Index, GS Commodity Index, … Some strategies are easier to replicate than others, but the performance (Return and SR) of most of them can be replicated with good accuracy. There was a Mutual Fund 4 or 5 years ago that did the same thing ( Look up Fidelity Hedge Fund Tracking)
check out hussman too.
Interesting question. They may have some percentage of AUM actually invested in the index, and then try to replicate the rest with some kind of factor model and using hedge fund replication methodologies (which are problematic, but that’s why you have a portion in the true underlying hedge funds).
What are the advantages of using an ETN? Why take on the credit risk of the issuer if there are other alternatives w/o credit risk? You aren’t getting paid for the credit risk are you? I think Goldman has a 40 act fund that does the same thing (the ART fund or something).