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Derivatives

Biofuels Pique High-Net-Worth Interest

Investors who have bought into commodity index and basket derivatives in the last year are now working up an appetite for investments linked to biofuels.

Investors who have bought into commodity index and basket derivatives in the last year are now working up an appetite for investments linked to biofuels. "It's hot," said one structurer, explaining U.S. President George Bush's State of the Union address in January announcing an increase in clean-energy research was a big boost for alternative fuels.

Several reverse convertible notes linked to ethanol producers have been issued in the last month and UBS is offering investors exposure to the tailor-made UBS Diapason Global Biofuel Index, launched in March. Along with agriculture-linked investments (DW, 1/27) and notes referencing eco-friendly companies (DW, 4/7), alternative energy investments are being pitched to sophisticated high-net-worth investor as an upgrade on the now ubiquitous commodity products.

The UBS index was created as a benchmark for biofuel and consists of futures contracts on 10 different commodities related to ethanol and biodiesel production, according to a term sheet. Officials at UBS did not respond to messages regarding final pricing details, but the term sheet was offering a certain level of capital protection, likely to be 94-98% of capital invested, and the index growth--if any--after three years. It was due to price Friday, as DW went to press.

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