In the early 2000s, several firms attempted to synthetically replicate hedge fund indices using statistical modeling and liquid ETFs. The problem? They reverse-engineered the risk/return profile but not the underlying investment strategy. The results looked good on paper—until the global financial crisis hit. When markets turned, these models failed to behave like the hedge funds they were meant to mimic. Investors learned the hard way: just because something replicates historical performance doesn’t mean it will perform the same way as an actively managed hedge fund strategy.

So, when people hear “replication” today, many assume it means that same synthetic approach—math-driven backtesting and derivative overlays.

But that’s not what we’re doing.

What do we mean by “Replication”?

The Third Wire / Morningstar PitchBook US Buyout Replication Index Fund (USBRIF) replicates the Morningstar PitchBook Buyout Replication Index on a 1:1 basis, i.e., the fund strategy is to directly own shares of the index constituents—not swaps, not synthetic overlays in an attempt to replicate the indexes performance, but actual equity positions.

Note: The index is the exclusive property of Morningstar, Inc., which does not sponsor, endorse, or promote this fund.

That distinction is critical. The resulting fund isn’t a portfolio of derivatives and other instruments reverse-engineered to match the Indexes performance. It’s a portfolio of the same equity positions held by the Index.

Why It Matters

A synthetic replication fund says:
“The index tends to have X volatility and Y Sharpe ratio. How do we construct a portfolio using various financial instruments to match that mathematically?”

Our fund says:
“The index holds X companies because it has identified them as having the same characteristics that private equity firms tend to focus on when making buyout decisions. We’ll buy them and hold them too.”

See the difference?

We get the list of index constituents from Morningstar Indexes and match our portfolio to the index–same companies, same weightings.

Breaking the Replication Stigma

If the word “replication” still makes you nervous, let’s be clear about what this fund isn’t:

• It isn’t synthetic. No swaps, no derivatives, no approximations.
• It doesn’t replicate the Index based on modeling past performace. It tracks the Index based on the actual list of constituents provided by the Index provider.
• It isn’t mathematically back-solved. 

We’d love to hear from you if you have any questions about the Index or our Fund. Contact us. You can also download and review the index Rulebook and Overview from the Morningstar Indexes website here.

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Disclaimer:

This document is for informational purposes only and does not constitute an offer to sell or a solicitation of an offer to buy any securities. It should not be construed as providing tax or legal advice. It does not take into account the specific investment objectives, financial situation, or particular needs of any reader. Readers should consult with their own tax, legal, and financial advisors to determine the appropriateness of any investment strategy or approach mentioned herein. Investing involves risk, including the possible loss of principal. Any investment in the Third Wire / Morningstar PitchBook US Buyout Replication Index Fund (USBRIF) (the “Fund”) is available only to verified accredited investors and is made exclusively through the Fund’s private placement memorandum or other authorized offering documents. The Fund is a private offering and is not registered under the Investment Company Act of 1940 or the Securities Act of 1933. Investments involve risks, including market volatility, economic uncertainty, and potential deviations from the Fund’s intended strategy. Past performance is not indicative of future results.

The Fund uses the Morningstar PitchBook US Buyout Replication Index, which is the exclusive property of Morningstar, Inc. Morningstar, Inc., its affiliates and subsidiaries, its direct and indirect information providers, and any other third party involved in, or related to, compiling, computing, or creating any Morningstar Index (collectively, “Morningstar Parties”) do not guarantee the accuracy, completeness, and/or timeliness of the Morningstar Index or any data included therein and shall have no liability for any errors, omissions, or interruptions therein. None of the Morningstar Parties make any representation or warranty, express or implied, as to the results to be obtained from the use of the Morningstar Index or any data included therein.

For further information, please refer to the Fund’s private placement memorandum or contact a representative of Third Wire Asset Management.

PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS.