DB Creates "No-Madoff" Hedge Fund ETF

Db x-trackers' new hedge fund ETF is a marriage of opposites in more ways than one. It combines the fastest-growing part of the fund management sector (ETFs) with the fastest-shrinking (hedge funds), the lowest- and the highest-fee investment products, and the funds most associated with liquidity and transparency with those renowned for opacity and restrictions on investor redemptions.

... the db x-trackers ETF aims to track the underlying funds' returns very closely, after taking fees into account. It does this by what is known as a managed account programme, where the hedge funds concerned act as the external investment advisers to pools of assets under the control of the bank. Deutsche Bank has set up a number of Jersey-based mutual funds to do this, and the ETF's assets will be spread across them.

A key difference between the managed account approach and a typical investment in a hedge fund is that the managed account allows much greater levels of transparency and liquidity.

... as Fiona Bassett, director of Fund Derivatives at Deutsche Bank, explained, the independent NAV calculation and the ring-fenced account structure provided by the managed account platform removes any "Madoff risk"—the possibility that an external fund manager might be lying about fund returns. The ETF is also UCITS-compliant, a big attraction for many investors.