Hedge clones thriving in perfect conditions

Hedge fund performance with mutual fund-sized fees is an attractive sales proposition. Therein lies the promise of hedge fund replication. According toa recent article in the Financial Times, the strategy holds particular promise in Asia, where investors have been battered for months by stormy markets.

The Shanghai composite index has lost more than half its value since Asian investors started to show a growing appetite for exchange traded funds. These are usually simple index trackers, but they are opening up the region to the idea of using passive products based on a basket of sophisticated instruments to clone another asset.

Nicu Harajchi, founder and chief executive of N1, a Hong Kong-based fund of funds for Asian retail investors, thinks the recent turmoil is creating the right conditions for a revival in capital guaranteed structured products in general, and for hedge fund replication strategies in particular.