Barclays Capital has leveraged the quantitative research capabilities gained via the acquisition of Lehman North America last year to create hedge fund replication indices for the Australian market.

The LBAR (Long Barclays Alternative Replicator) and SBAR (Shortable Barclays Alternative Replicator) were created by the quantitative portfolio strategy (QPS) research team that came across from Lehman’s after the September purchase.

Allen McCristal, head of distribution, Australasia at Barclays Capital, says the indices could appeal to superannuation funds who want to hedge their portfolios at a cheap cost.

“You’ve got pension funds who are underweight their portfolios in hedge funds, and here’s an example where they can lock in their current position so it doesn’t go down any further and from here on, potentially it goes up, so they have an alpha performance,” he says.

“There are a few super funds that are looking at redeeming some of their exposures, and I think that’s still going on, but there are many super funds out there now which are exposed to the hedge fund market, and we all know what’s happened there.”

LBAR is a fully investable index which can be traded daily and is designed to mimic hedge fund performance, while SBAR can be used to establish a short exposure to the hedge fund industry.

Hedge fund replication has proved a popular strategy with European and UK pension funds seeking lower fees and greater liquidity.

Swedish state pension fund AP7 is in the process of replacing its entire fund of hedge fund position with replication, and the UK’s Universities Superannuation Scheme last year appointed State Street Global Advisors to manage a $US200 million ($158 million) hedge fund replication mandate, alongside its single manager hedge fund program.

While the LBAR and SBAR are defined benchmarks, bespoke benchmarks are also available.

“We then correlate other liquid instruments to that benchmark and we run a model that recalibrates that physical portfolio,” McCristal says.

“In that portfolio it will have bond futures, equity indices, options – everything that’s liquid – it’s a very quantitative-type solution and the model keeps running and keeps updating, so it tracks the benchmark. You can either do it in a swap to the counterparty or we can run the model and tell them what instruments to buy so they do the physical buying and selling of the assets.”

Barclays also recently launched in February the Inspire index, which provides superannuation funds access to inflation protection for Australia.

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