US - State Street Global Advisors (SSgA) has revealed plans to develop synthetic hedge funds which could be made available to institutional investors.
Christopher Woods, senior managing director for absolute return strategies at SSgA, said the vehicles enabled investors to gain the spread strategy without paying hedge fund fees.
No timeframe was outlined for the products but Woods said they would offer investors many benefits.
He said: “They would help with liquidity and a multi-strategy approach and they provide a benchmark for performance.”
In producing synthetic products, Woods said one process which can be used was a factor replicating approach where mechanical rules constructed portfolios based on the desired spread strategies.
Another strategy was based on techniques derived from option replication technology to create a trading strategy to produce the required return distribution, explained Woods.
His remarks came after a survey carried out by the firm this year found 32% of respondents viewed high fees as the single greatest obstacle to investing in hedge funds.
During the presentation, Gary Enos, executive vice president for State Street corporation, said consultants were good at identifying providers, but he was not convinced about using them as a guide for asset management because of the limited availability of performance data.
Goldman Sachs, Merrill Lynch and JPMorgan have already rolled out tools to replicate or clone hedge fund style performance, without the standard fees, according to reports.
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