Structurers are rolling out tweaked capital-protected fund structures in a bid to lure back investors put off by recent hedge fund underperformance. The moves are prompted by a strong fall off in interest in hedge funds as an asset class over the last few months--a development underscored by the fact officials across the board expect fund-linked derivative sales this quarter will be down over the first quarter.
Investors are particularly uncomfortable with fixed leveraged exposure, determined by the multiple factor in CPPI deals, which dynamically allocates assets between leveraged investment in a fund of funds and a cash investment. Goldman Sachs and Calyon are among dealers offering investors protected fund of funds exposure with twists on the leverage factor.
Goldman is pitching a CPPI structure for multi-asset funds which offers different multiple factors for the different asset classes in the fund. One investor who is considering structuring this type of deal with Goldman said it is attractive because it is more flexible than traditional CPPI, which would apply the same multiple factor across the fund. Officials at Goldman were not available to comment by press time.
Calyon has taken a different approach by structuring CPPI-type deals with a leverage factor it can change, but one sales official at the firm said these deals often have to be longer-dated and this does not appeal to all investors. Calyon has just closed a structure with variable leverage and a 12-year tenor.
Marcos Camhis, coo of fund of funds Capital Management Advisors in Geneva, said it has steered clear of CPPI strategies altogether, because the leverage means the dealer will be moving assets from the fund when it does badly. Capital-protected securities linked to CMA have been structured using option plus zero coupon bonds, he noted. But one dealer said even this strategy does not safeguard the fund manager or investor entirely, as the derivatives house writing the option will hedge it by buying and selling the underlying fund.
