NEW YORK (HedgeWorld.com)–Glenwood Capital Investments LLC, the U.S. arm of London-based Man Group plc,* registered with the Securities and Exchange Commission a fund of funds designed solely for investors with tax-exempt and tax-deferred status, including employee benefit plans and individual retirement accounts.

Called Man-Glenwood Lexington TEI LLC and organized as a Delaware limited liability company, the new vehicle will invest in a Cayman Islands company. The latter in turn will invest in Man-Glenwood Lexington Associates Portfolio, a separate SEC-registered fund with the same investment objectives as TEI.

This structure enables tax-exempt investors to invest in TEI without receiving certain types of income in a form that would otherwise be taxable, despite such investors’ tax-exempt status.

Because hedge funds use leverage, tax-exempt investors subject to the Employee Retirement Security Act of 1974 (ERISA) and other laws can incur income tax liability. This is the case to the extent that portfolio transactions give rise to unrelated business taxable income. But TEI is designed not to pass UBTI on to its investors.

Low Minimum

The product is meant in particular for pensions, profit-sharing or other employee benefit trusts, employee benefit plans, certain deferred compensation plans established by corporations, individual retirement accounts, foundations and endowments, and state colleges and universities.

Individuals who own IRAs could use this product to diversify into hedge funds–an investment alternative that otherwise might not be available to them. Minimum initial investment in TEI is US$10,000, well within the scope of a relatively small IRA. But corporations would first have to make the fund available for their employee plans.

Increased diversification has been advised for employee retirement accounts as a way to avoid large losses from stock market slumps or situations like Enron, where workers lost their nest eggs when the company went down because they had been encouraged to keep their pension primarily in Enron stock.

TEI will invest indirectly in a hedge fund portfolio that contains a variety of styles and managers and targets “stable, positive returns over a full economic cycle,” according to the SEC filing. Preserving capital regardless of what happens in U.S. or global financial markets and producing returns that have low correlation to major market indices are part of its investment objective.

Underlying hedge fund strategies may include commodities and futures, distressed debt, mergers and reorganizations, relative value, sectors and geographic regions. TEI carries an annual management fee of 1.75%.

The initial offering is expected to close on Jan. 1, 2004. After that, shares may be offered on a monthly basis through Dec. 1, 2005. Man Investments Inc. is the distributor.

Man group recently also registered a capital-guaranteed structured note for U.S. investors

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Man Group plc is a minority investor in HedgeWorld.

CKurdas@HedgeWorld.com