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Portfolio > Alternative Investments > Hedge Funds

UBS Warburg To Issue S&P-Linked Notes

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LONDON (–The latest offering from UBS Warburg combines the structure of a hedge fund-linked certificate with the S&P Hedge Fund Index, which PlusFunds offers in an investable format.

Germany is the first country in which the firm plans to offer the new hedge fund certificates. UBS Warburg announced that it was offering investment certificates issued by UBS Warburg AG in Frankfurt, a subsidiary of UBS AG.

As the certificates are offered in lots of 10,000 euros and US$10,000, it marks the first time the S&P Hedge Fund Index/PlusFunds portfolio has been offered in both euro- and dollar-denominated shares. Certificates are the hedge fund offering of choice due to heavy taxation of foreign funds and strict regulation of domestic funds in Germany. Approximately 16 billion euros have been invested in hedge fund-linked certificates so far.

UBS Warburg officials are in the process of getting approval to offer certificates in Germany, but eventually the company plans to sell certificates throughout Europe, Asia and Latin America. As currently structured, the certificate offers the holder a bearer note on a major European stock exchange and is traded in a regulated market. The certificates can be settles via Euroclear or Clearstream settlement services.

“As a conservative financial institution, we value the brand recognition of Standard & Poor’s, along with the transparency and risk control measures that they have put in place for this index,” said Helmut Fischer, executive director for UBS Warburg London.

According to UBS Warburg officials, the structuring of the S&P Hedge Fund Index certificates makes investing in hedge funds a more efficient and less expensive process. The performance is linked to that of the S&P Hedge Fund Index, which so far is up 3% this year. UBS Warburg charges clients 2% in fees, while paying PlusFunds 1% for investing in the underlying hedge fund portfolio.

UBS plans to sell the certificates to institutions such as corporations, pension funds and insurance companies in addition to private banks, which are expected to find the offering attractive for their discretionary portfolio management business.

UBS Warburg now has structured product offerings totaling US$4 billion in assets, and it is expected that the certificates could attract an additional US$1 billion in assets, said Arun Gowda, director in UBS Warburg’s London office.

For PlusFunds, this is the 19th offering based off of the S&P 500 Hedge Fund Index. Since striking the alliance with S&P, the firm has raised US$420 million in the last six months, said Christopher Sugrue, chairman of PlusFunds. Those deals include partnerships with BNP Paribas and Rydex Global Advisors. (Previous HedgeWorld Story) Besides other offering agreements in the works, PlusFunds expects to roll out investable sub-indexes and has already started the process with introducing the S&P Managed Futures Index.

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