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Goldman Clone Gets To ART Of The Matter

Goldman Sachs is the first bank out of the gate with a hedge fund clone with its Absolute Return Tracker (ART) index, with market watchers expecting many more to come.

Goldman Sachs is the first bank out of the gate with a hedge fund clone with its Absolute Return Tracker (ART) index, with market watchers expecting many more to come. According to Financial Times, Goldman Sachs hopes ART – which was two years in the making -- will draw investors away from the high fees of the hedge fund sector, as it will charge a flat 1%, compared with annual charges that can reach between 4% and 7%, which can dig deep into returns. As some observers see it, the tracker is déjà vu all over again, as it was a generation ago when mutual funds index trackers hit the scene and changed that sector forever. ART is also being viewed as a driving force behind some HF industry house cleaning. "There is a lot of dead wood in the industry – people who should not be running hedge funds," Prof. Harry Kat, who teaches risk management at London’s Cass Business School, and the creator of a hedge-fund clone theory of his own and a new fund based on replication. Kat predicts that a lot of hedge funds will leave the business "because people are smartening up," and that index replication "is going to be become as important as it is in traditional long-only investment" -- to the tune of 30% to 40% of the market. ART works by taking the performance characteristics of thousands of hedge funds, says FT, and entering them into the system, after which the fund will analyze the data and come up with the "aggregate position of the hedge fund universe. GS’ Edgar Senior, a member of the firm’s fund derivative structuring team, says ART may be a perfect match for institutional investors that "don’t like the fact that it takes six months to put money [in] and to take it out again."

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