Deutsche Bank eyes ETFs for hedge fund strategies

Date: Thursday, March 25, 2010
Author: Reuters

Deutsche Bank (DBKGn.DE: Quote, Profile, Research) is considering launching exchange traded funds (ETFs) on individual hedge fund strategies as risk appetite among investors continues to improve, said the head of ETF structuring at the bank.

Manooj Mistry, who leads Deutsche's db x-trackers ETF team in London, said it already had a hedge fund ETF, but was looking to drill down deeper and offer clients access to the separate trading methods within the industry.

"We'll investigate looking at the underlying strategies as well," he told the Reuters European Funds Summit.

"It could be an attractive area."

ETFs are investment products which track an index to provide straightforward exposure to a particular country, region or asset class.

The firm's existing hedge fund ETF -- which reflects the performance of 40 managers across a variety of strategies -- has grown its assets to $1.2 billion in the past year. Mistry said pension funds were using it to gain easy hedge fund exposure and private bank investors use it as a more liquid component of a broader hedge fund strategy.

Fees on the hedge fund ETF of 0.9 percent of assets come on top of standard hedge fund fees of a 1-2 percent management charge and a performance fee which can be 20 percent of returns or more, which are built into the ETF performance.

The 0.9 percent fee is high compared with the usual 30 to 50 basis points for less complex ETFs.

Mistry said Deutsche was likely to look first at long-short investing, the most straightforward hedge fund strategy, as it develops the concept. 

He also predicted that the ETF industry as a whole would examine launching more products focused on individual frontier markets -- the sharp end of the emerging markets segment -- in another demonstration of burgeoning risk appetite, albeit within the passive and lower fee world of ETFs.

Deutsche Bank already has a Vietnam ETF which has attracted about $200 million in the space of two years.

"I think people want exposure to Asia. There is a demand for this," he said.