Understanding Hedge Fund Indices, Biases and Methodologies

ongoing challenge for investors and managers in the industry. At Mesirow Advanced Strategies (MAS), creating custom benchmarks for each of our underlying managers is a critical component of our investment process. These custom benchmarks are created utilizing specific underlying instruments and exposures that best approximate a manager’s historical and expected exposure profile. Deviations from these expectations are potential sources of alpha and risk that assist us in formulating our opinions and analysis of the sources of manager return. It is a resource-intensive and time consuming process with broad applications. However, certain limitations also must be understood. Custom benchmarking is clearly a different approach than what is available to most investors who typically must rely on index providers’ published index returns.