Index Construction Rules

July 2011
© 2011 HEDGENORDIC.COM. All rights reserved.

The Nordic Hedge Fund Index ('the Index') is an equal weighted hedge fund index derived from the performance of Nordic hedge fund managers and advisors.

The objective with the Nordic Hedge Fund Index and the Hedgenordic database is to serve as a 'single access point' and a gateway to the Nordic hedgefund community and industry. Hedgenordic will provide centralized and standardized performance reporting, a measure for benchmarking, a knowledge base and a source of industry news.

Index Universe:
The Nordic Hedge Fund Index is based on performance as reported by hedge fund managers (investment managers & advisors) domiciled in the Nordic region.

The representative countries are:

  • Sweden
  • Norway
  • Finland
  • Denmark
  • Iceland

The index makes no distinction with regards to the domiciliation of the fund vehicles. Both onshore and offshore vehicles are eligible for inclusion, provided the fund(s) meet the admission requirements (ref. Admission Requirements) and the investment manager/advisors are located within the Nordic region.

Admission Requirements:
In order for hedge funds to be admitted into the index, the full performance history, reported as monthly returns net of all fees or monthly NAV’s net of fees, must be made available to the Hedgenordic database. IMPORTANT please note, managed accounts do not qualify for inclusion.

The investment manger/advisor may choose to register on the website and submit the full performance history and AUM via the registration and performance reporting facility on the website.

Before a fund can be admitted into the index, the Hedgenordic staff must have on file the latest annual report (if any) and the most current version of the Offering Memorandum, the Private Placement Memorandum or the Prospectus (fund managers will have the option to keep AUM confidential to other users of the database).

Registering a fund for inclusion into the index is free of charge.

Classification Structure:
Hedgenordic has determined its classification structure based on the instruments traded by the fund manager. The classifications are:

  1. Equity Strategies (equity and equity derivatives)
  2. Fixed Income Strategies (fixed income and derivatives)
  3. Multi Process/diversified Strategies (a fund is classified as Multi Process if less than 80% of the fund’s activities comes from one particular classification category)
  4. Managed Futures/CTA’s (listed financial and commodity futures and foreign exchange, usually a systematic, i.e. model driven approach)
  5. Fund of Hedgefunds (funds that invest in other hedgefunds)

Classification Process:
Hedge funds are classified into one of the 5 categories listed above. Determination of the category is initially done by the fund manager when submitting the fund(s) for inclusion into the index. Subsequently, the staff at Hedgenordic will review the fund’s Offering Memorandum (or PPM) and marketing material to verify that the chosen classification category is consistent with the overall classification structure and index methodology.

Index Computation Methodology:
The Nordic Hedge Fund Index is an equal weighted index. The Index value is calculated from the arithmetic mean of monthly returns from all constituents in the index.

Arithmetic Mean:  (a1+ ...+aN)/N

The inception date of the Nordic Hedge Fund Index is January 1st, 2005 and the initial index value will be 100. Fund managers wishing to submit their fund(s) for inclusion in the index as from January 2005, must submit their complete performance history, AUM and other required documentation before 1 June 2005. Admission to the index thereafter is done continuously on a forward looking basis, in accordance with the admission requirements.

A fund manager that submits his fund(s) for inclusion after 1 June 2005, even if there is a qualified track record, will not become included in the index calculation prior to the registration data.

Survivorship Bias:
In order to minimize the effects of survivorship bias, all funds, even funds that have been in existence and have terminated operations prior to 1 June 2005, are eligible for inclusion in the index calculation. The purpose of including such funds is to accurately depict the performance of the Nordic hedge fund industry and to mitigate the effects of survivorship bias.

Reporting Requirements:
Hedge fund managers must report performance results and AUM as soon as possible after the end of the month and when they become available. On the 5th business days into a new month, that month will become the active reporting month on display for the website. However, investment managers/advisors will have 1 full month and 5 business days to report final performance. After 1 month and 5 business days the index data is finalized and published.

A preliminary flash index estimate is published on the 14th of each month. The flash estimate will provide an estimated index number, a performance estimate in percentage and the percentage of funds having reported.  

Example: (for the purpose of clarification we assume today’s date is 5 February 2005)

In order to fulfill the reporting requirements a fund manager must report performance data and AUM for the month of December 2004 before the 5th business day into February 2005. This will allow for 1 full month plus 5 business days to finalize and report the performance of the fund(s). 

A fund manager that fails to comply with the reporting deadline will not be included into the index data calculation for the particular month. Managers that fail to report for two consecutive months are automatically excluded from the index.