IndexIQ, an upstart developer of hedge fund replication strategies, has hired Anthony Davidow as its new senior vice president and head of distribution. Davidow's hire signals IndexIQ's ramping up of plans to push its alternative index strategies into the major U.S. distribution channels.

In one sense, Davidow faces a major challenge: Hedge fund returns have been abysmal this year across all the major hedged asset classes: Only two of the 27 hedge fund asset classes tracked by Hennessee Group posted positive performance in October (see story). What's more, the mass redemptions that have hit hedge funds as a result of performance woes will likely result in a shakeout in the hedge fund industry.

But that actually has Davidow excited.

"With half of the hedge funds likely to go out of business, we look at it as a good thing," Davidow said.  He said the shuttering of so many hedge funds should rile investors, and help to turn them in the direction of alternative alpha strategies that have lower fees, liquidity and more flexible investor redemption policies. "The message coming from hedge funds when they close their doors is to tell the investing public, ‘heads I win, and collect 2 and 20, and tails you lose, and we start a new fund,'" Davidow said.

IndexIQ is developing hedge fund replication strategies that use portfolios of ETFs to deliver returns similar to various hedge fund strategies. Year-to-date through Sept. 30, the company's IQ Alpha Hedge Index had returned -9.70%, versus a CS/Tremont Hedge Fund Index return of -12.44%, and an S&P 500 return of -19.29%. Using backtested data ending Sept. 30, 2008, the strategy is up 5.98% over three years and 10.27% over five years, compared with 1.25% and 2.91% for the CS/Tremont Hedge Fund Index.

Davidow is now searching for a sales team to cover the U.S. He plans to hire three people in all: a national sales manager and two internal wholesalers. Davidow was previously a managing director for Morgan Stanley's Consulting Services Group.