Thinking of starting a business in the asset management industry?  Say, a company that develops methods for constructing investable hedge fund indices?  Or maybe an outfit that lends money to asset managers in exchange for a share of its revenues?  Well, you can forget about it.  This week, U.S. patents were awarded to companies that have developed somewhat novel ways to do both.

Royal Bank of Canada, the world’s tenth most profitable bank locked up the patent rights for a long list of business processes relating to the management of investable hedge fund indices and the structured products built upon them (see patent).  In typically passive and arcane language, the patent itself reads like a case study in excessive patenting:

“What is claimed is:  A computer implemented method for balancing an index of a plurality of hedge funds, the method comprising: calculating, by a computer system, a hedge fund weight for a hedge fund included in the index; determining, by the computer system, if the calculated hedge fund weight exceeds a hedge fund weight maximum, the hedge fund weight maximum corresponding to a maximum proportion of the total index that can be allocated to a particular fund; determining, by the computer system, if the calculated hedge fund weight is less than a minimum hedge fund weight, the minimum hedge fund weight corresponding to a ratio of a required capacity or exposure to the net exposure of the index; and adjusting the percentage of the index allocated to the particular fund if the calculated hedge fund weight exceeds the hedge fund weight maximum or is less than the minimum hedge fund weight…”

In other words, RBC Capital Markets now owns the rights to use a “computer system” (?) to calculate hedge fund index weights.  Yet many of the claims stated in the patent document sound remarkably similar to an index methodology white paper.  For example… More…