Key Takeaways
- • BNP Paribas has been granted a licence by Standard & Poor's to offer derivatives products linked to the S&P Hedge Fund Index, with products and liquidity expected by early 2003.
- • The derivative suite will include principal protected notes, swaps, and options available to investors worldwide, offering unprecedented daily liquidity for hedge fund-linked products under normal market conditions.
- • The S&P Hedge Fund Index, launched November 18, 2002, comprises 40 funds across three style categories: arbitrage (equity market-neutral, fixed-income arbitrage, convertible arbitrage), event-driven (merger arbitrage, distressed, special situations), and directional/tactical (long/short equity, managed futures, macro).
- • PlusFunds, a New York-based service platform, holds the primary licence from Standard & Poor's to develop investable products based on the index, while Deutsche Bank's DB Absolute Return Strategies has separately signed a distribution agreement with PlusFunds for S&P Hedge Fund Index-based products.
- • Daily pricing transparency and liquidity of the S&P Hedge Fund Index enable BNP Paribas clients to track hedge fund return drivers and identify risks in alternative asset class investing more effectively than previously available products.
Summary
BNP Paribas is entering the hedge fund derivatives market by offering a range of structured products linked to the newly launched S&P Hedge Fund Index. The French bank intends to deliver principal protected notes, swaps, and options based on the index, with products and liquidity expected to become available by early 2003. This move represents a significant expansion of retail and institutional access to hedge fund market exposure through standardized derivative instruments.
The S&P Hedge Fund Index, which was introduced in May 2002 and officially launched on November 18, 2002, comprises 40 hedge funds organized into three distinct style sub-indexes: arbitrage (covering equity market-neutral, fixed-income arbitrage, and convertible arbitrage strategies), event-driven (including merger arbitrage, distressed, and special situations strategies), and directional/tactical (encompassing long/short equity, managed futures, and macro strategies). The index is designed to provide broad representation of the hedge fund market.
The licensing and product distribution structure involves multiple parties. PlusFunds, based in New York, holds the primary licence from Standard & Poor's to develop investable products based on the S&P Hedge Fund Index. Deutsche Bank's DB Absolute Return Strategies division signed a separate distribution agreement with PlusFunds in late November 2002 for S&P Hedge Fund Index-based products. BNP Paribas has secured its own derivative licence to create and distribute structured products to investors globally.
According to Stéphane Liot, global head of fund derivatives at BNP Paribas, the index's pricing characteristics enable daily liquidity provision under normal conditions—a feature he characterized as "unprecedented for any hedge fund product." The daily transparency provided by the index allows investors and BNP Paribas to better track the drivers of hedge fund returns and identify underlying risks within the alternative asset class, addressing a historical opacity challenge in hedge fund investing.
The S&P Hedge Fund Index, which was introduced in May 2002 and officially launched on November 18, 2002, comprises 40 hedge funds organized into three distinct style sub-indexes: arbitrage (covering equity market-neutral, fixed-income arbitrage, and convertible arbitrage strategies), event-driven (including merger arbitrage, distressed, and special situations strategies), and directional/tactical (encompassing long/short equity, managed futures, and macro strategies). The index is designed to provide broad representation of the hedge fund market.
The licensing and product distribution structure involves multiple parties. PlusFunds, based in New York, holds the primary licence from Standard & Poor's to develop investable products based on the S&P Hedge Fund Index. Deutsche Bank's DB Absolute Return Strategies division signed a separate distribution agreement with PlusFunds in late November 2002 for S&P Hedge Fund Index-based products. BNP Paribas has secured its own derivative licence to create and distribute structured products to investors globally.
According to Stéphane Liot, global head of fund derivatives at BNP Paribas, the index's pricing characteristics enable daily liquidity provision under normal conditions—a feature he characterized as "unprecedented for any hedge fund product." The daily transparency provided by the index allows investors and BNP Paribas to better track the drivers of hedge fund returns and identify underlying risks within the alternative asset class, addressing a historical opacity challenge in hedge fund investing.
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