Credit Suisse First Boston and Dresdner Kleinwort Wasserstein are structuring funds that give European retail investors exposure to hedge funds. The instruments are wrapped as UCITS III funds (undertaking for collective investment in transferable securities) so that they can be offered in every European Union country once one regulator approves the structure. UCITS guidelines stipulate that the fund must have daily liquidity, which is not possible with direct investments in hedge funds.
The deals are likely to be structured as UCITS III mutual funds which invest in hedge fund indices or fund of funds, noted rivals. Deutsche Bank issued a similar product two months ago in Germany which was UCITS I wrapped, and linked to an in-house hedge fund index.
"These sound like interesting products," said Martin Bertsch, head of financial engineering at JPMorgan in London. He noted, however, similar products--such as index certificates--could be created without using UCITS III. The advantages of the index certificate are that the time to market is shorter, there are no fund fees and an index product can be less expensive to maintain than a fund.
