JPMorgan and Deutsche Bank are considering structuring options on hedge fund indices in the coming weeks. Deutsche Bank will likely reference derivatives to the Hedge Fund Research (HFRX) index and market sources say JPMorgan is looking at Standard & Poor's or Morgan Stanley Capital International indices.
Deutsche Bank is just starting to offer options on hedge fund indices. Jean-Marie Barreau, global head of Deutsche Bank's alternative investments platform in London, said, "We have done due diligence on both S&P's and HFRX's indices and decided to offer options [on] HFRX at the moment." He explained that for S&P there is a mismatch between subscription and redemption periods since only one month's notice is needed to invest, but three months notice is required to redeem capital. In contrast, HFRX allows investors to put in and withdraw capital with on month's notice.
Citigroup already offers options on the S&P, MSCI and HFRX indices, according to Jean-Luc Bernardi, v.p. in equity derivative structured products in London. "We are seeing increasing demand for indicative pricing on options on hedge fund indices. We think that this will be a growth area."
Bernardi said he thought that all three index providers would be popular with investors. "Whilst S&P and MSCI are popular index providers, HFR are well known by hedge fund managers and investors."
