Germany's Deutsche Bank has launched a fund of hedge funds, Xavex HedgeSelect, which it believes is the first such fund to be treated as an on-shore vehicle by European tax authorities. The demand for Xavex HedgeSelect is great, with high net worth individuals and small institutions already having placed around U$1.57bn with the fund.
Johan Groothaert, Deutsche Bank's head of origination
and distribution, said of the new fund: 'Until now,
hedge funds, or funds of hedge funds, have been considered
as off-shore investment vehicles by most continental
European countries. As a result, the returns earned
by a continental European investor would have been
taxed as income.' In addition, the inability to register
a fund of hedge funds on-shore has meant it could
not be distributed "publicly" to more than
50 people.
Deutsche Bank has found a way of getting Xavex HedgeSelect registered in Germany, Belgium, the Netherlands, Luxembourg and Switzerland, so far. Mr Groothaert said: 'We had 10 lawyers occupied for six months solving the problem. It's not a traditional fund platform but uses a 'certificate', which gives all the economic rights of ownership without actually giving ownership.' Owners of certificates cannot vote.
The fact that Deutsche Bank has managed to place such a high level of capital with the fund in such a short space of time is, says Groothaert, 'proof of the distribution power of Deutsche Bank and the appetite high net worth individuals and small institutions have for absolute returns.' He added: 'We are recommending to high net worth individuals that between 5 per cent and 10 per cent of their total assets should be in hedge funds.'
Frankfurt-listed Xavex HedgeSelect invests in more than 20 individual hedge funds, selected and monitored by Deutsche Asset Management (DAM). Separately, DAM is about to launch its own long-short hedge fund. With XavexHedgeSelect, investors will be able to buy or sell shares daily, while each month there is a unit creation and redemption service. It also possesses a currency protection measure to protect European investors from exposure to the euro/dollar exchange rate.
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