New Star RBC Hedge 250 Index Exchange Traded Securities PCC Ltd., or Hedge ETS, raised USD 150 million from an initial public offering in shares linked to the performance of more than 250 hedge funds.
The fund-raising adds to a flood of money pouring into hedge funds this year through European listed funds of hedge funds and other alternative investment companies.
Shares in these types of companies can be traded daily in any amount, unlike open-ended hedge funds and funds of hedge funds that typically require minimum investments of around USD 100,000 and year-long lock-ups of capital.
More than USD 3 billion has been raised so far this year in London and Amsterdam for listed hedge fund companies, and a further USD 1.9 billion is expected when MWTOPS Ltd., a vehicle of UK hedge fund group Marshall Wace LLP, joins Euronext Amsterdam next month.
While most of the listed companies give investors exposure to pools of hedge funds selected and actively managed by an established funds-of-hedge-funds manager, Hedge ETS’ returns will reflect the performance of an index launched by the alternative assets group in Royal Bank of Canada’s capital markets unit in July 2005.
Its constituent hedge funds collectively controlled USD 192 billion at 1 Sept., or about 15 percent of the world’s estimated USD 1.3 trillion in hedge fund assets. The annualised return on the index, net of a 0.95 percent fee, is 10.1 percent.
Hedge ETS will charge an additional 0.85 percent annual fee, indicating a 9.3 percent annualised return for the new product. A three-times leveraged version of the shares that accounted for 18 percent ofthe IPO has a 1 percent annual fee.
“Hedge ETS offers a truly diversified pool of hedge funds selected on a non-discretionary basis,” says Ravi Anand, the head of structured products at New Star Asset Management PLC. “We had a good response from throughout the world, people understood the benefits of adding this to their clients’ portfolios as a diversification tool and as an alternative to funds of hedge funds.”
The shares also offer an alternative to other investable indexes of hedge funds, a market estimated at about USD 9 billion. These indexes historically have underperformed non-investable ones since they track as few as 50 or 60hedge funds and often have rigid rules on the managers they include, such as requiring lengthy track records.