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The biases that inflate the performance of hedge funds have been well documented in the financial literature. Survivorship bias, which results from the ex-post exclusion of unsuccessful funds from databases, and backfill or instant history bias, which occurs when the historical performance of a successful fund is retroactively added (backfilled) into the database, distort the performance of the hedge fund industry. These biases tend to inflate the returns posted by non-investable hedge fund indices. Investable hedge fund indices can help investors mitigate the effects of these biases, but investable indices cannot include all existing funds. The number of underlying funds is often twenty times less than that of non-investable indices. In these conditions, investable indices are...
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