IIB Bank opened up the growing hedge-fund market to smaller investors yesterday by launching a guaranteed bond that uses hedge-fund investment techniques.
The IIB bond boasts 100 per cent capital security and requires a minimum investment of just €10,000 - much lower than the sums investors have previously needed to invest in hedge funds.
The Pinnacle Performance Bond will give investors a return based on the performance of a "fund of hedge funds" to be selected and managed by HFR Asset Management.
The "fund of hedge funds" will comprise 40-50 individual hedge funds, with one portfolio concentrating on equity-related strategies and a second portfolio taking a more independent approach.
Hedge funds are becoming increasingly fashionable, with the global market more than doubling since 2000.
Mr John Godden, managing director, HFR Europe, said hedge funds were traditionally viewed as highly volatile, risky investment funds that gave rise to extremely high returns.
But funds of hedge funds were more risk-averse than direct equities and had given roughly similar returns over a 10-year period, he said. Hedge funds have gone through a rocky period in recent months. However, average losses have been confined to around 2 per cent.
HFR, the largest provider of hedge fund data internationally, expects funds to recover before the end of 2004.
Mr Mark Donnelly of IIB said hedge funds were still relatively new, but he expected the bond's capital security to attract hedge fund novices.
The six-year bond starts out with 100 per cent participation in the hedge funds. This participation rate varies depending on how the funds are performing and can be as low as 10 per cent.
