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Hedge Fund Indexes and Their Survivorship Bias

Article Quant Q&A · Author: SiXUlm
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Summary

The document asks whether indexes exist for hedge funds, private equity, and venture capital. The answer identifies HFR as a provider of hedge fund indexes, including an investable index, but says the respondent is not familiar with comparable private equity or venture capital indexes. It offers no detail on index construction or a comparison of providers.

The main lesson is to treat hedge fund index performance cautiously. Funds that stop accepting new investments may be inaccessible to new investors, while funds that fail can leave the index. This creates survivorship bias and can make historical index results a poor guide to what investors could actually have earned. The answer therefore judges even investable hedge fund indexes to have limited practical value. It provides no supporting data, and its assessment is an opinion rather than a quantified analysis.

Key ideas

  • HFR provides hedge fund indexes, including an investable index.
  • The respondent does not identify indexes for private equity or venture capital.
  • Closed funds can make an index unrepresentative of opportunities available to new investors.
  • Failed funds leaving an index can create survivorship bias in its reported performance.

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Multi-assetStatistics
Full text
# Index for Hedge fund, Private Equity, Venture Capital


# Index for Hedge fund, Private Equity, Venture Capital












We have index for stock market, like S&P500, Nikkei 225, etc.

I wonder if we have any index for hedge funds, private equity or venture capital?

## Answer by Brian B (score 2, accepted)

https://quant.stackexchange.com/a/15601

I am not familiar with indexes for private equity or venture capital. For hedge funds, there are various indexes, with the best-regarded ones provided by HFR. They include an investable index.

I happen to believe these indexes, even the investable one, are of very limited use at best. Many hedge funds are closed, meaning they are not taking in new money. Others have exited the index through failure, meaning there is a strong survivorship bias.

Shown in full with attribution under the source's licence. Licence: CC BY-SA 4.0 (Stack Exchange)

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.