HFR Group, a Chicago-based hedge fund research firm and asset manager, plans to launch a series of investable global hedge fund indices and is in negotiations with around five banks, including Dresdner Kleinwort Wasserstein and Rabobank, to provide structured products referenced to the indices. "It's a very big move," said an individual familiar with the fund derivatives industry. As more investors move capital into hedge funds there is a race to develop hedge fund benchmarks and products structured on them, according to bankers. So far, Standard & Poor's is believed to have the only global investable hedge fund index and BNP Paribas is in the process of structuring derivatives, including principal-protected notes and hedge fund linked swaps and options, referenced to the index. Louise Beeson, spokeswoman at DrKW, and Henrietta Hirst, spokeswoman for HFR in London, declined comment.
"We are very interested in these indices," said Yin Wu, head of equity derivative sales at Rabobank in London, who has met with HFR about developing products referenced to the indices. He said the bank is considering structuring certificates and principal protected notes. "We won't do anything too exotic until we figure out how liquid the indices actually are," Wu added.
The eight indices will be the first that HFR offers that are transparent enough to allow firms to structure products on them, according to a fund derivatives structurer familiar with HFR's plans.
What makes these indices investable is that all the funds included will be open funds, so that structurers can actively hedge exposure, said one structurer who is familiar with the new indices. Many existing indices include closed funds that are no longer open to investors. He added that HFR will offer daily liquidity and transparency.