  A Hedge Fund Index is very useful for tracking the performance of hedge fund
investments, especially the timing of fund redemption. This paper presents a
methodology for constructing a hedge fund index that is more like a
quantitative fund of fund, rather than a weighted sum of a number of early
replicable market indices, which are re-balanced periodically. The constructed
index allows hedge funds to directly hedge their exposures to index-linked
products. That is important given that hedge funds are an asset class with
reduced transparency, and the returns are traditionally difficult to replicate
using liquid instruments.
