Dresdner Kleinwort Wasserstein has set up a replicable index of hedge funds, which it will also use as a reference for derivative products. Mehraj Mattoo, co-head of alternative investments in London, said the index consists of over 100 managers. Investors can hand pick 30-40 funds as the basis for structured products, such as principal protected funds, total-return swaps and options. David Besancon, co-head of alternative investments in London, said, "if you can't replicate [the index] you can give a wrong image of performance. You can crunch numbers but if you can't invest it is not meaningful." He added the index is diverse in terms of location and style.
Mattoo thinks this index will be useful for investors because many of the existing indices contain managers, which are closed to new investment and are therefore not replicable. These products are aimed at the firm's most sophisticated investors. He added that writing options on third party fund of funds will remain the bulk of the department's work. Dresdner will continue to offer structured products on hedge funds, which are not included in its index.