MSCI Goal of Building the Better Hedge Fund Index Gains Clarity

February 1, 2001 ( Morgan Stanley Capital International is getting closer to launching a family of hedge fund indices and has hired Michel Serieyssol as global head of MSCI's hedge fund index business.

Mr. Serieyssol was a managing director at Bear Stearns for three years, where he oversaw prime brokerage sales and marketing in the firm’s London office. Maintaining a presence in London for MSCI, he will be responsible for all commercial and operational dimensions of the hedge fund index business.

Last January, the global index firm announced it would launch the MSCI Hedge Fund Indices in partnership with London-based investment manager Financial Risk Management. Since that announcement both companies have been working to on designing a transparent system of hedge fund classification and performance measurement, as well as creation of a web-based platform for data collection, delivery and analytics.

“Our goal here is to be the industry benchmark,” said Richard Quigley, MSCI’s global director of business development in the firm’s New York offices.

The decision to compile an index was client and market driven with increasing interest on the part of institutional investors leading the way, Mr. Quigley said. He predicts that the business of selling hedge funds will change significantly with the increasing interest from institutions creating a greater appetite for more relationship-based marketing.

The first indices will not be investable, but that is something MSCI realizes is important and is seriously thinking about it, he said.

There will be three levels of classification for hedge funds included in the indices.

  • Funds are first divided by investment process: Most funds fall under directional trading, which includes hedge funds that pick stocks to long or to short. The second investment style category is relative value, which includes arbitrage strategies. Lastly, MSCI officials categorize specialist credit managers, which are firms who invest by analyzing credit risk.
  • The second level of classification in the new indices is by asset class: The asset class divisions are fixed income, commodities, currencies and stocks, said Matthew Griffiths, director of research at Financial Risk Management, the London-based firm assisting MSCI.
  • Thirdly funds will be broken out by geography: The regions will be similar to those used in other MSCI indexes, Mr. Griffiths added.

Financial Risk Management is an investment advisory firm that manages $1.2 billion fund of funds and separate accounts. The firm also boasts a large private hedge fund database that tracks 3,000 funds.

Mr. Griffiths has spent most of his time, since MSCI and FRM made their announcement, working on developing the technology and the intellectual framework for the new indices.

The process of working on the framework has been a long one, but officials at both firms have been erring on the side of process and making sure the job is done properly, Mr. Griffiths said.

While specific delivery dates have yet to be announced, Mr. Griffiths expects the indices rollout by this summer. Mr. Griffith is now working on signing up hedge funds to participate in the indices.

By Susan L. Barreto, Senior Reporter


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