CESR has put the cat among the pigeons with a discussion paper it issued last month, announcing it will rethink the use of hedge fund indices in UCITS III wrappers. Commodity-index products are also questioned in the paper. The discussion paper itself is not a surprise (DW, 1/7), but officials say its comments on the use of financial indices in funds were harsher than expected.
Tim Cornick, partner at Macfarlanes in London, said he is working with clients to look at other wrappers for index-linked products, while they wait for the outcome of the discussion paper. One fund structurer said CESR's stance is unreasonable, because it suggests a fund invested entirely in Greek government bonds with sole concentration risk on the Greek government, is more appropriate for retail investors than a diversified bond portfolio and a swap linked to a hedge fund index with a volatility of 2-3%.
