HFRI Fund of Funds Composite

HFRI Fund of Funds Composite
Name	HFRI Fund of Funds Composite
Provider	Hedge Fund Research, Inc.
Inception	1990s
Type	Fund of funds benchmark
Currency	USD
Constituents	Multi-manager hedge funds

HFRI Fund of Funds Composite

The HFRI Fund of Funds Composite is a proprietary benchmark maintained by Hedge Fund Research, Inc. that aggregates returns for multi-manager investment vehicles used by institutions such as BlackRock, Goldman Sachs, JPMorgan Chase, Morgan Stanley, UBS, Credit Suisse, Citigroup, Deutsche Bank, and Bank of America. Launched to serve allocators including CalPERS, TIAA, Harvard Management Company, Yale University, and Princeton University, the index provides a reference for performance relative to strategies pursued by firms such as Bridgewater Associates, Renaissance Technologies, Two Sigma, AQR Capital Management, and Elliott Management.

Overview

The Composite is part of a family of benchmarks from Hedge Fund Research, Inc. alongside the HFRI Equity Hedge Index, HFRI Event Driven Index, HFRI Macro Index, and HFRI Relative Value Index, and is widely cited by institutions including National Association of State Retirement Administrators, S&P Global, Morningstar, MSCI, Bloomberg, and FTSE Russell. Asset allocators from Soros Fund Management, Paulson & Co., Carlyle Group, KKR, Blackstone, Apollo Global Management, Bain Capital, TPG Capital, and Oaktree Capital Management use the Composite in asset allocation models alongside benchmarks such as the S&P 500, MSCI World Index, Bloomberg Barclays US Aggregate Bond Index, and ICE BofA US High Yield Index.

Composition and Methodology

Constituents are reported aggregates from fund-of-funds managers and multi-manager platforms operated by entities like Neuberger Berman, Franklin Templeton, Invesco, Schroders, Man Group, Standard Life Aberdeen, State Street Global Advisors, Fidelity Investments, Vanguard Group, and Northern Trust. The methodology employs manager-weighted returns, survivorship-bias adjustments, and smoothing techniques similar to procedures used by Chartered Financial Analyst Institute studies, Basel Committee on Banking Supervision guidance on risk aggregation, and accounting standards from the Financial Accounting Standards Board. Data submissions originate from regulators and service providers such as SEC, CFTC, National Futures Association, Deloitte, Ernst & Young, KPMG, and PricewaterhouseCoopers.

Performance and Historical Returns

The Composite’s long-term figures are compared by commentators at The Wall Street Journal, The New York Times, Financial Times, The Economist, Barron's, and Institutional Investor to returns of renowned allocators including David Swensen and Ray Dalio. Periods of outperformance and drawdowns are analyzed in academic journals such as Journal of Finance, Review of Financial Studies, Journal of Portfolio Management, and Financial Analysts Journal, and in conference proceedings of CFA Institute and SALT Conference. Performance attribution often references managers with track records like Jim Simons, Joel Greenblatt, Ken Griffin, Steve Cohen, Daniel Loeb, and Carl Icahn.

Risk Characteristics and Correlations

Risk metrics reported for the Composite include volatility, Sharpe ratio, beta, skewness, and kurtosis, often contrasted with factors such as the Fama–French three-factor model, Carhart four-factor model, and macro indicators from Federal Reserve Board, European Central Bank, Bank of England, Bank for International Settlements, and International Monetary Fund. Correlation analyses cite hedging behavior similar to strategies run by Citadel, Millennium Management, DE Shaw, PIMCO, Ziff Brothers Investments, and Brevan Howard, and are used by sovereign wealth funds like Government Pension Fund of Norway, Abu Dhabi Investment Authority, Qatar Investment Authority, Kuwait Investment Authority, and Temasek Holdings to calibrate portfolio exposures.

Industry Use and Market Impact

Asset managers, consultants, and custodians including Mercer, Willis Towers Watson, Aon, BlackRock Solutions, BNY Mellon, State Street, Citi Private Bank, HSBC, Wells Fargo Advisors, and RBC Wealth Management reference the Composite in due diligence and marketing materials. Its aggregation influences fee negotiations with fund managers at firms like Man Group, Neuberger Berman, Campbell & Company, Adage Capital Management, and impacts liquidity provisioning by prime brokers such as Goldman Sachs Prime Services, Morgan Stanley Prime Brokerage, and Credit Suisse Prime Services.

Criticisms and Limitations

Critiques originate from academics, regulators, and industry practitioners at institutions such as University of Pennsylvania, Harvard University, Stanford University, MIT, London School of Economics, Columbia University, Yale University School of Management, Oxford University, Cambridge University, and Princeton University. Common limitations cited include selection bias, backfill bias, fee opacity, and survivorship bias, concerns also raised in studies by SEC, CFTC, European Securities and Markets Authority, Financial Conduct Authority, and think tanks like Brookings Institution, Peterson Institute for International Economics, and National Bureau of Economic Research. Commentary appears in forums organized by IMF, World Bank, G20, Group of Seven, and industry bodies such as the Alternative Investment Management Association.

Category:Financial benchmarks