Fund derivatives with exotic payoffs will follow hot on the heels of HFR Asset Management launching a fund to short its HFRX Global Hedge Fund index (DW, 4/24). Dealers said short selling the index will allow them to hedge exotic payoffs, such as cliquets which lock-in investment gains.
Fund-linked structurers say there is growing demand from investors for the exotic payoff profiles they see in equity investment products to be applied to hedge funds. But one official noted exotic fund-linked structures may not attract significant volumes of investment. "The hedge fund underlying is exotic enough for many investors," he explained.
