Index

Selection by rules.

Every constituent enters, sizes, hedges, and exits on a documented rule.

Background

Manager selection in private funds is driven by relationships and pedigree. It works for endowments doing months of due diligence per manager. It is opaque, retrospective, and slow to correct. The Navmont Yield Index replaces it with a documented rule set that runs deterministically.

Eligible universe

The index is asset class agnostic on liquidity. It selects across publicly traded yield positions and illiquid tokenized private fund interests. The discipline that makes this defensible is the per position hedge rule, not a liquidity screen on the constituent itself.

• Liquid constituents (BDCs, mortgage REITs, REITs, MLPs, dividend equities). Priced continuously from market.
• Illiquid constituents (tokenized private fund interests with monthly or quarterly NAV). Eligible provided a publicly traded counterpart exists that prices the same underlying risk in real time. Rule 02 applies equally: no hedgeable counterpart, not eligible.

Private fund screen

Each tokenized private fund position must clear:

• Manager track record. Minimum vintage history, minimum net IRR, team continuity test.
• Factor exposure. Underlying must map cleanly to a publicly traded counterpart for hedging.
• Liquidity tier. Wrapper liquidity terms documented and compatible with the implementing basket's redemption flow.
• Credit quality. For private credit positions: senior secured share, lien position, concentration limits per borrower.

Public stock screen

Public stocks (yield positions and hedge counterparts) must clear:

• Distribution covered by real cash flow. Each asset class is measured against the cash flow that actually funds its distribution, not GAAP earnings (which understates real distributable income for these structures). For BDCs that is net investment income, for mortgage REITs earnings available for distribution, for REITs funds from operations, for MLPs distributable cash flow.
• Volume. Average daily volume supports non disruptive entry and exit at the modeled position size.
• Hedgeable. Correlated public hedge instrument exists with adequate options liquidity.

Hedge construction

Every constituent carries a sized hedge against a publicly traded counterpart pricing the same underlying risk (Rule 02). The hedge layer is constructed continuously, independent of the quarterly constituent rebalance.

• Proxy assignment. Each constituent is assigned a public market hedge instrument (sector ETF, index, or single name) where realized return correlation with the constituent exceeds the documented floor for its asset class. The proxy is reviewed each rebalance.
• Sizing. Hedge notional is set to neutralize the residual public market beta of the constituent against the proxy. Residual beta target and rebalance band documented per asset class.
• Instrument. Listed put options on the assigned proxy. Strike, tenor, and roll schedule documented per asset class. Annual cost budget capped per asset class.
• Correlation breach. If realized correlation drops below the documented minimum for two consecutive review windows, the constituent fails Rule 02 and exits per Maintenance.

Weighting and concentration

Weights are set at each scheduled rebalance from the rule based selection output. The methodology applies three concentration caps (Rule 03):

• Per position. No single constituent above 20% of the index.
• Per correlated cluster. No group of constituents sharing a hedge proxy above 40%.
• Per sub asset class. No single asset class (BDC, mREIT, REIT, MLP, private credit, dividend equity) above 50%.

Within those caps, weights follow the selection model output. Caps are versioned and changelogged per Maintenance.

Pricing

Index value is a blend. Liquid constituents mark continuously from market. Illiquid constituents mark from issuer reported NAV with a real time adjustment derived from the assigned public hedge instrument. The adjustment captures the documented smoothing bias in private fund NAV reporting: issuers smooth losses into book value while the public proxy crystallizes them in real time.

Calculation

• Type. Total return. Includes distributions and hedge cost or payoff.
• Constituent rebalance. Quarterly. Illiquid pricing is the binding constraint.
• Hedge layer. Reevaluated continuously against real time proxy prices.

Exit criteria

A constituent fails the methodology and exits when:

• Distribution coverage falls below the documented threshold for two consecutive review windows.
• Hedge correlation drops below the documented minimum for two consecutive review windows.
• Position liquidity falls below the floor for its weight tier.
• Manager track record breaks: team departure, strategy drift, regulatory action.

Operational handling (rebalance cycle versus immediate removal, cash treatment, additions) lives in Maintenance.