U.S. firms will likely dive into fund-linked deals when hedge fund returns pick up. Several firms started marketing certificates of deposit linked to hedge fund indices before news of poor hedge fund returns, particularly from those running credit strategies, emerged. John Larkin, head of the alternative investments solution group for the Americas atDeutsche Bank in New York, said firms will become more active in structuring these hedge fund-linked CDs once returns pick up.
Earlier this year, Bear Stearns and HSBC began issuing CDs linked to the HFRX Global Hedge Fund Index, run by HFR Asset Management. The certificates typically feature a seven-year maturity and 100% principal protection, with an investment minimum of USD50,000, or USD25,000 for registered investment advisors. In the trade, the investor is essentially buying a principal-protected note with an embedded call option that offers the upside of the HFRX index.
Harry Engelman, an official in the structured products group with Bear Stearns in New York, referred calls to spokesman Russell Sherman, who declined comment. Rusty Schreiber, a structured products official with HSBC in New York, did not return calls.
