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Derivatives

UBS Private Banking Plans Alternatives Rollout

UBS Private Banking plans to raise the profile of alternative investments in both its discretionary accounts and advisory products and will boost its use of over-the-counter derivatives in the process. Rainer Kensy, global head of alternative investments in Zurich, said, "we will offer everything... The whole nine yards," referring to hedge funds, private equity and guaranteed products. He added that the numbers are mouthwatering, with alternative investments expected to account for 5% of the private bank's over USD500 billion under management in three years. At the moment they account for about 1%. Christopher Fawcett, director at Fauchier Partners, which runs portfolios of hedge funds, in London, said "This is a material sum." Adding that the entire hedge fund industry only has about USD500-600 billion under management.Martin Phipps, head of hedge funds at Gartmore in London, said "This can only be positive for the hedge fund sector."

Many of the products, such as guaranteed notes, will use or be structured with over-the-counter derivatives. Kensy said UBS Warburg will be the counterparty for the derivatives transactions. The largest impact will be seen in discretionary accounts the private bank runs. At the moment these have virtually no alternative investments but the bank plans to launch a discretionary account which will have an average of 5% allotted to alternative investments at the end of the month.

The private bank is offering these products because clients want to diversify out of bonds and equities as bond yields are unattractive and the equity market is weak, according to Kensy. He continued that clients have been asking for alternative investments for a while but the bank did not want to offer the services until it could roll out a full product range suitable for a variety of risk and tax profiles.

The private bank will start the effort by incorporating UBS O'Connor, Global Asset Management and UBS Paine Webber products into its services and will then look to offer third party products. Kensy said it would have no hesitation investing in hedge fund strategies which use over-the-counter derivatives. Alastair Smith, head of sales and marketing at Aspect Capital in London, a quantitative hedge fund manager with USD500 million under management, said this money would be particularly welcome because many private banking products have a fixed maturity so the managers know how long they will have the capital.

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