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Derivatives

Deutsche Bank Pips Rivals With First UCITS Hedge Fund-Linked Deal

Deutsche Bank has structured what is believed to be the first fund--with a UCITS wrapper--that gives exposure to an underlying hedge fund index.

Deutsche Bank has structured what is believed to be the first fund--with a UCITS wrapper--that gives exposure to an underlying hedge fund index. The structure is revolutionary in terms of fund-linked products, according to rivals, because it offers investors daily liquidity and transparency on an underlying that is traditionally illiquid. In addition, the UCITS-compliant wrapper means the product--unlike traditional funds-of-funds--can be sold on a pan-European basis. "This is a break-through in passportable wrapping," said Benedict Peeters, director in the structured products origination team at Deutsche Bank in London.

The product is linked to a proprietary index based on Standard & Poor's Hedge Fund Indices. Deutsche Bank's private banking research team acts as an index allocater, actively selecting different strategies on a regular basis. The fund enters into over-the-counter swaps with Deutsche Bank to give investors exposure to the performance of the index, Peeters explained.

The Undertaking for Collective Investment In Transferable Securities, or UCITS, wrapper allows the fund to be sold across the European Union. The product will be launched in Germany today and there are plans to take it to Belgium and southern Europe, said Peeters.

One rival commented that the 'risky' nature of the underlying did not appear to be in the spirit of the UCITS legislation. "This seems to have the recipe for a battle between [E.U.] legislators," he observed. Yet the deal comes on the back of demand for this type of UCITS fund that has been around for over a year, he acknowledged. "UCITS is likely to be the distribution format of the year," one market official added.

The German bank has also structured a similar fund that gives exposure to a broader range of alternative investments, including CTAs and commodities.

 

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