Goldman Sachs has created a hedge fund replication tool to undercut the high fees charged by hedge funds. The performance characteristics of...

Goldman Sachs has created a hedge fund replication tool to undercut the high fees charged by hedge funds. The performance characteristics of thousands of hedge funds will be fed into the new system which calculates the aggregate position of the hedge fund universe. Goldman will charge a flat 1 per cent to investors for access to the platform, the Absolute Return Tracker index. Investors thus avoid fund of funds fees which can be 4-7 per cent per annum, with a large percentage of returns going to managers. As few of the better hedge funds are open to new investment, investible hedge fund indices and funds of funds suffer from negative selection bias. Replication models are one way to avoid this.