Strong institutional demand for comprehensive and robust performance benchmarks for risk parity products has prompted HFR to launched the HFR Risk Parity Indices, which are available to both investors and managers.
Risk parity is a portfolio allocation strategy based on targeting risk levels across various components of an investment portfolio. The risk parity approach allows investors to target specific levels of risk and to divide that risk equally across their portfolio in order to achieve optimal diversification. The primary objective of risk parity investing is to earn the same level of performance as traditional asset allocation strategies, but with less volatility and risk, and to realise stronger performance with an equal amount of risk and volatility. Risk parity products continue to gain popularity with both US and international financial institutions.
The family of six HFR Risk Parity Indices incorporates two important specialised features integral to benchmarking risk parity products: volatility targets and institutional asset levels. Each risk parity product carries a specific target of annualised volatility which reflects the amount of risk taken across major asset classes.
The HFR Risk Parity Indices are published with volatility targets of 10 per cent, 12 per cent, and 15 per cent, each of which contains a sub-index of funds exceeding an institutional asset threshold of USD500 million in strategy capital (the ‘HFR Risk Parity Institutional Indices’). All HFR Risk Parity Indices feature an annual rebalance and are investible through HFR Asset Management. The current universe of index constituents represents a total of 25 risk parity products, managing approximately USD110 billion in strategy capital.
“HFR is pleased to launch the new family of Risk Parity Indices, which have been developed in close conjunction with the underlying managers and an ongoing collaborative effort with institutional investors. HFR has successfully achieved the goal of providing a robust and flexible benchmark for investors in the Risk Parity space,” says Kenneth J Heinz (pictured), President of HFR. “Institutional investors and Risk Parity managers have embraced the use of volatility targets and the implementation of institutional asset thresholds as index construction features, as these will help to solidify the broad global acceptance of HFR risk parity benchmarks in this significant area of investor allocation.”