The City of New Haven’s Employee Retirement Fund has invested USD8m in IndexIQ’s multi-strategy hedge fund replication separately managed account vehicle.

The IQ Hedge Multi-Strategy SMA is designed to be liquid, transparent and low cost.

This allocation represents the first time the City of New Haven’s Employee Retirement Fund has invested in a hedge fund-like strategy.

The IQ Hedge Multi-Strategy SMA seeks to track, before fees and expenses, the performance of the IQ Hedge Multi-Strategy SMA Index. The index attempts to replicate the risk-adjusted return characteristics of the collective hedge funds using multiple hedge fund investment styles, including long/short equity, global macro, market neutral, event-driven, fixed income arbitrage, and emerging markets.

IndexIQ does not invest directly in hedge funds. Instead, it seeks to replicate the performance of the hedge fund strategies by investing in selected exchange-trade funds.

“In today's economic environment, it is especially important for trustees to be open to examining alternatives as part of their investment allocation to ensure it has the proper diversification to meet the evolving needs of their fund,” says Derek Ciampini of Coppola Ciampini, a unit of Ameriprise Financial Services, consultant to the City of New Haven’s Employee Retirement Fund.

“By using ETFs to replicate hedge fund performance, we can provide investors with increased liquidity and full transparency at a considerably lower cost than traditional hedge funds,” says Adam Patti, chief executive officer at IndexIQ. “At the same time, the investor avoids fund manager-specific risk, a key concern in the post-Madoff world.”