HSBC Launches Capital Guaranteed Fund Of Hedge Funds

by Carla Johnson, Investors Offshore, London

31 July 2002

HSBC Republic Investments is to launch its first capital guaranteed fund of hedge funds.With a minimum investment of US$10,000, the HSBC Republic Alternative Wealth Protector offers retail investors access to the hedge fund sector along with a capital guarantee at maturity. HSBC Republic - the private banking brand of HSBC - will monitor the product and act as investment adviser on the selection of hedge funds. The offer period consists of a series of tranches, closing between late July and late September 2002. It will have a five-year fixed term and matures in August 2007. The fund aims to invest in between 25 and 30 hedge funds. Target volatility is 8%.

The HSBC hedge fund product offers a 100% capital guarantee, the ability to gear up to a further 50% and a profit lock-in feature. For each 15% incremental increase in the invested capital each year from launch, the product will lock in a profit of 5%. The maximum potential lock-in is 25% of the invested capital.

Paul Dunning, chief executive of HSBC Republic Investments, said: "Investment in absolute return funds and hedge funds has grown rapidly in recent years, fuelled by the realisation that hedge funds seek to deliver positive investment returns under all market conditions rather than performance relative to a benchmark."

The fund has a front-end charge of 3%. The management fee is 1.7% a year, plus 1.75%, covering the implementation and provision of the capital guarantees. The fund, which will be predominantly offshore, will be domiciled in the Cayman Islands.

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