BNP to offer derivatives based on S&P Hedge Fund Index

BNP Paribas has been granted a licence by Standard & Poor’s (S&P) to deliver derivatives products linked to the S&P Hedge Fund Index. BNP is the first bank to be given permission to develop derivatives based on the index.

The French bank said it intends to provide a variety of derivatives products linked to the S&P Hedge Fund Index that could include principal protected notes, swaps and options that will be available to investors worldwide. BNP Paribas expects products and liquidity to be available by early 2003.

The S&P Hedge Fund Index, introduced in May 2002 and launched on November 18, is designed to broadly represent the hedge fund market. PlusFunds, a New York-based service platform for hedge funds, holds the licence from Standard & Poor’s to develop certain investable products based on the S&P Hedge Fund Index.

The S&P Hedge Fund Index comprises 40 funds divided into three style sub-indexes: arbitrage, event-driven and directional/tactical. The arbitrage sub-index includes equity market-neutral, fixed-income arbitrage and convertible arbitrage strategies. The event-driven sub-index includes merger arbitrage, distressed and special situations strategies. The directional/tactical sub-index includes long/short equity, managed futures and macro strategies.

“The pricing characteristics possessed by S&P Hedge Fund Index should enable us to provide daily liquidity under normal conditions, which is unprecedented for any hedge fund product,” said Stéphane Liot, global head of fund derivatives at BNP Paribas. “In addition, the daily transparency offered by the index provides us, and in turn our clients, with the ability to track better what drives hedge fund returns and identify the risks in investing in this alternative asset class.”

At the end of last month DB Absolute Return Strategies, the global hedge fund management business of Deutsche Bank, and PlusFunds signed an agreement for the distribution of S&P Hedge Fund Index-based products managed by PlusFunds.