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XL and PlusFunds Planning Passive Hedge Funds

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HAMILTON, Bermuda (–XL Capital Ltd. will team with PlusFunds Inc., New York, in the development of S&P Hedge Fund Index products designed for the insurance and reinsurance company markets.

XL, itself an insurance and reinsurance company, already is heavily involved in the hedge fund industry. XL will assist PlusFunds in tailoring structured products that will appeal to the insurance and reinsurance industries, said Christopher Sugrue, chairman of PlusFunds. The products will be linked to Standard & Poor’s S&P Hedge Fund Index, which was announced in May and is slated to be unveiled in November.

Previously, XL has taken equity stakes in a number of hedge fund firms, including OneCapital Management Partners LLC, Stanfield Capital Partners, Agora Capital Management Ltd., Hamilton, Bermuda.

The industry is divided on the future of hedge fund indexing, with a slew of firms–such as Standard & Poor’s, CSFB/Tremont*, and MSCI–developing indexes to be used for indexes, while others in the industry criticize the effort.

PlusFunds and S&P are bullish on hedge fund indexing. PlusFunds is steaming ahead with plans to introduce hedge fund index-linked products. Just a few weeks ago, a joint venture with Singapore-based United Overseas Bank Ltd. to develop an S&P-based hedge fund index was announced. Mr. Sugrue said more deals are likely to be announced in coming weeks, most likely related to distribution. PlusFunds oversees about US$290 million in S&P Hedge Fund Index-linked assets.

Others take a dimmer view on indexing. Executives for Carlyle Asset Management Group, Washington, suggested that passive investing in hedge funds exposes investors to too much risk. Previous HedgeWorld Story. In addition, two UBS Warburg researchers concluded that hedge fund indexes aren’t even that useful as benchmarks.

*Tremont Advisers Inc., Rye, N.Y., is a partner in the CSFB/Tremont index, and also is a strategic partner with, and minority investor in, HedgeWorld.