The great index divide

Investors in funds of funds can use indexes provided by the likes of Hedge Fund Research to benchmark performance. But some market participants are sceptical about the role such indexes can play. Philip Craig reports

For the investor looking for a liquid asset class that offers absolute returns, hedge funds of funds have become increasingly attractive over the past few years. According to research by Morgan Stanley, the largest 20 hedge funds of funds have grown by 65% (compound annual growth rate) over the first half of 2004 alone. But while hedge fund indexes are plentiful, fund-of-funds indexes are less common, meaning that benchmarking has, to date, proved cumbersome for investors.

As a result, Chicago