BNP Paribas Asset Management plans to launch several funds on baskets of hedge funds over the next two years and set up between 5-10 hedge funds covering everything from weather derivatives to merger arbitrage.Jean Dominjon, global head of alternative and quantitative asset management in London, said the move is part of a plan to quadruple assets under management in alternative investments over the next five years to EUR40 billion (USD33.9 billion). Most of the funds will use OTC derivatives, he added.
The asset manager believes the alternative investment sector will provide the best returns for investors and for the asset manager, Dominjon said. He added the last five years saw exceptional growth in global stock markets and it is unlikely investors will be reward with similar returns in the next five years as markets revert to the mean. Therefore BNP is encouraging clients to invest in non-correlated assets. The surge in products also coincides with Dominjon's appointment two months ago from Société Générale, where he was head of global markets.
Investment banks, including BNP Paribas, will structure the guaranteed funds on baskets of hedge funds. The funds will likely be structured on baskets of 12-15 external funds on all classes of hedge funds. Dominjon said when clients become more comfortable with hedge funds BNP Paribas Asset Management will start offering investors exposure to the performance of individual hedge funds. It will do this by setting up its own hedge funds, which could leverage off the bank's expertise in a range of products including derivatives, according to Dominjon.
Dominjon listed merger arbitrage, long/short equities, statistical arbitrage, foreign exchange, managed futures and weather derivatives as areas where it was considering setting up hedge funds. He declined comment on the criteria for its selection but said it will make its final selection of guaranteed funds and hedge funds during the summer.
BNP Paribas Asset Management wants to run the hedge funds in house because it wants control over how they are run. Dominjon said when it sells a product it takes on part of the responsibility of that product as far as its clients are concerned so managing the fund internally gives it greater peace of mind.
BNP Paribas Asset Management has EUR165 million under management.
