PIMCO has structured a fund around a swap on the Dow Jones AIG Commodity Index. The fund pays investors the return of the index, plus it will actively manage investment in TIPS, U.S. inflation-linked bonds, to boost the commodity returns and hedge against rises in inflation. PeterPaul Pardi, head of institutional re-marketing in Europe, said PIMCO also investigated buying an option on the index, but chose the swap strategy because it was more cost effective. Pardi declined to reveal the swap counterparty.
Pardi said high-net-worth and institutional investors are interested in the fund. PIMCO is talking to the Luxembourg regulator, where the fund is based, about UCITS III authorization for the structure, which would mean the fund could be sold to retail investors. Commodities are not an asset class permitted within UCITS III funds, but some lawyers argue the directive allows investment in derivatives, which can then be linked to commodities as in this structure.
