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New Star makes third offering of Hedge ETS index product

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New Star Asset Management is making a third offering of Hedge ETS, a London listed daily tradable security.

New Star Asset Management is making a third offering of Hedge ETS, a London listed daily tradable security. The Hedge ETS provides investors with exposure to the RBC Hedge 250 Index, which has closely tracked returns on hedge funds and outperformed other recognised investible hedge fund indices.

According to New Star, Hedge ETS compliments other methods of obtaining exposure to hedge funds. Compared to most funds of hedge funds, the index provides highly diversified exposure to hedge funds with minimal selection bias and consistency of returns.

By comparison with hedge fund replication strategies, which seek to mimic future hedge fund returns through the allocation to a limited number of factors based on historical data, the index is better able to keep pace with rapidly changing opportunities in global markets through allocation to 250 actively managed hedge funds, with different strategies and styles.

Says New Star director Ravi Anand: ‘Hedge ETS offers unique access to the performance of the hedge fund universe through a well constructed representative index, with the added benefit of daily liquidity. Indices may seem an anathema to hedge fund investing, but as interest in hedge funds grows, there is increasing demand for diversified exposure to the asset class.

‘This third offering is in response to strong demand from investors. We expect interest from institutional investors and wealth managers seeking to benefit from the portfolio diversification benefits provided by hedge fund returns.’

New Star’s two previous offerings raised more than USD250m from investors in 20 countries, notably Spain, Switzerland, the UK and various offshore jurisdictions. For the third offering, the prospectus will be published on or around May 24, the placing close on June 21 and the new shares will begin trading on June 28.

The index is designed to be a representative, investible benchmark of the performance of the hedge fund asset class. It offers extensive diversification across more than 250 hedge funds and nine distinct strategies, a rules-based construction methodology designed to emphasise inclusiveness and minimise selection bias, and inclusive selection criteria encompassing hedge funds which may have lock-ups, redemption gates or low liquidity and which are currently closed to investment.

The index is asset-weighted by strategy and approximately equally-weighted initially by hedge fund. The total assets under management of the funds in the index amounted to USD230bnat the end of April, according to RBC Capital Markets.

Between its inception on July 1, 2005 and the end of March, the index achieved an annualised return of 11.3 per cent, outperforming other recognised investible hedge fund and fund of hedge fund indices on both an absolute and risk adjusted basis.

Two types of shares are being offered; 1X shares which offer unleveraged exposure to the performance of the index and 3X shares, which target three times exposure. Under the placing, both are available in euro, sterling and US dollars, with a minimum investment of EUR50,000, GBP40,000 and USD75,000 respectively.

Hedge ETS, which obtains exposure to the index through swap contracts with Royal Bank of Canada, offers daily liquidity and the ability to redeem shares close to net asset. On May 18 the mid-market price of the US dollar 1X and 3X shares were 8 per cent and 13 per cent above their issue price respectively.

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