Fund farewells to leverage
After the heydays of 2005 and 2006, the structured funds space is showing signs of strain. Liquidity shortages and worries about the future of some hedge funds have taken their toll, leading some banks to withdraw or make big cuts in investment in this area of structured products. Michael Marray reports
The global squeeze on bank balance sheets is having a knock-on effect in the structured products industry among fund derivatives providers who repackage funds of funds and add leverage for the benefit of their institutional and high-net-worth clients.
The provision of leverage, which could typically equal two to four times the equity investment in a fund of funds, is a crucial part of the business. But it is also something that credit committees at some institutions have been demanding is scaled
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