Desjardins Closes Hedge Fund-Linked Notes

Oct 27 2008 | 9:05am ET

Canadian financial cooperative Desjardins Group is shuttering as much as C$4 billion in hedge fund-linked products burned by the battering taken by hedge funds this year.

Desjardins will wind down the principal-protected notes, the Perspectives Plus Guaranteed Investment and Alternative Guaranteed Investment, which were scheduled to come due over the next five years, according to the Globe and Mail. The firm has been redeeming its hedge fund investments since Oct. 1, when CEO Monique Leroux decided to close the PPNs. It is unclear what losses, if any, the firm will sustain.

Investors, of course, will not lose anything: Their principal was guaranteed. Desjardins had invested about 80% of the proceeds from the sale of the PPNs in bonds, with just 20% invested in hedge funds. The hedge fund portion of the portfolio was levered in an effort to boost returns; according to the Globe and Mail, that investment is largely lost.

“We’re not necessarily losing money on this, it’s just that we cannot offer the possibility our customers get a good return on these investments,” Desjardins spokesman André Chapleau told the newspaper. “The customer is not affected and the capital is guaranteed. We were never able to guarantee the performance.”

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