By Collins, Daniel P.
Futures (Cedar Falls, IA) , Vol. 32, No. 4
Hedge funds and fund of funds historically have been non-registered products because managers can use exemptions from various securities laws that allow them to avoid the lengthy registration process, which would limit their profitability. The drawback on the exemptions, however, is they limit them to 99 accredited investors and they can not solicit or even hold themselves out to the public as investment advisors.
Perhaps with an eye to opening the sector to retail investors and cognizant of recent rumblings of mandated registration requirements from the Securities and Exchange Commission (SEC), increasingly more hedge fund products are seeking registration.
Filings for registered hedge funds are coming from both the traditional investment world, which is familiar with registered products but not alternative investments, and from the alternative investment world looking to expand its universe through registered funds.
In another sign that the traditional investment world is offering more alternative investment strategies in an attempt to reverse recent poor performance, the asset management arm of American Express Financial Corp. has filed a registered fund of funds vehicle with the SEC.
Advisory Hedged Opportunity Fund plans to invest in 15 to 30 managers and will use numerous hedge fund strategies including short selling, various arbitrage strategies and managed futures, according to the SEC filing.
While the fund only is available to accredited investors, its Class I shares will be offered at a relatively low minimum of $50,000. American Express will offer Class II shares with a $1.5 million minimum. While American Express has offered non-registered products in the past, its fund of funds comes on the heels of Charles Schwab offering long-short mutual funds with a $25,000 minimum.
Man Group plc's first U.S. registered hedge fund, Man Glenwood Lexington, recently launched. The move allows Man to offer its product to a larger universe and solicit the public. The fund of funds product will give qualified U.S. investors access to a product with a nine-year track record and will be the first of a series of registered products offered in the United States, which could include capital-guaranteed products, according to Man.
Rydex Capital Partners recently has reached an agreement with Standard and Poor's and PlusFunds Group Inc. to offer a registered investment product based on the S&P Hedge Fund Index. The product will be available to an unlimited number of accredited investors through independent registered investment advisors and will have a $25,000 minimum. The index of 40 institutional managers representing nine hedge fund strategies was launched in May 2002 seeking to represent the broad hedge fund universe.
Comparing index returns December YTD S&P 500 Total Return Index -5.88% -22.10% Lehman Brothers Treasury Index +4.38% +17.17% Morgan Stanley EAFE Index -3. …