Hedge fund index performance has been woeful year-to-date, but that has not stopped Société Générale Asset Management Alternative Investments from launching what it claims is the first exchange-traded fund to replicate the global hedge fund universe. SGAM ETF T-Rex (T-Rex for total return exposure) has listed on Euronext Paris.

SGAM ETF T-Rex is pegged to the performance of the HFRX Global Hedge Fund Index, down close to 9% this year, through Sept. 22. Last year, the index was up a little more than 4%. In general, the Hedge Fund Research series of indexes, in line with the hedge fund industry as a whole, has had one of its worst years of performance in 2008. Nevertheless, the strategy has already been tested in the traditional mutual fund format by SGAM, since August 2007, and that fund has attracted about €254 million.

Capturing the index theme in the hedge fund space and through the mutual fund structure is not entirely new. IndexIQ and Goldman Sachs have both launched open-end funds based on hedging strategies. (See story here.) The IndexIQ Alpha Hedge Strategy Fund even uses ETFs as part of its underlying investments, and IndexIQ recently landed its first partner for overseas distribution of the fund. (See story here.)

For SGAM, the idea is to capture alternative beta in an ETF by replicating hedge fund allocations, but breaking them out into separate long and short positions in traditional asset classes. The ETF portfolio invests across equities, bonds and currencies, using futures, among other instruments. SocGen's structured asset management team has created a quantitative model to calculate the allocation that optimizes correlation to the index. HFRX tracks 2,000 hedge funds in all. SGAM is positioning the T-Rex as a way to obtain exposure to the hedge fund asset class, or as a complement to a standard hedge fund allocation.

That said, with hedge funds catching the ire of investors of late for not properly hedging the market, it is an open question as to whether the short-term performance issues are just a blip, or a fundamental sign of an industry that has become too large and strayed from its original value-added proposition. Tracking the Russell 2000 was not the purpose of hedge funds, frustrated hedge fund investors have recently noted.

With the once high-flying, investment celebrity hedge fund industry in a major slump, investors will likely be cautious about trying to replicate that performance through any new hedge fund ETF.