Credit Suisse To Launch First Hedge Fund Replicator In US

Feb 15 2011 | 9:34am ET

Credit Suisse will release a leveraged version of its merger arbitrage exchange-traded note which was launched last year and has already attracted $53 million.

The bank will list its 2x Monthly Leveraged Credit Suisse Merger Arbitrage Liquid Index (Net) ETN on the New York Stock Exchange later this month. It will be the first listed hedge fund replicator in the US.

The ETN tracks an index that mechanically targets and buys companies about to be acquired while shorting the acquiring companies.

The ETN resets on a monthly basis and has a 20-year maturity but Michael Clark, managing director, structured products at Credit Suisse in New York, told Risk.net the non-leveraged version of the ETN has attracted interest from funds of funds which use it on a short-term basis. It has also been used by registered investment advisers and private banking clients. Credit Suisse has also done over-the-counter deals on the strategy.

“The strategy is very attractive from a risk return standpoint. The volatility is around 4-5% – around a third of the volatility of the S&P 500 – and the returns are about 7.5%. That is a very good ratio, and if you have a low-volatility strategy it lends itself to leverage," says Clark.

Credit Suisse has AUM of about $300 million in the ETN market, which it entered a year ago.


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