has successfully registered a new fund with the Securities and Exchange Commission
that offers hedge fund investments to investors. The SEC approved the structure of the fund last week. That structure and the compromises that Deutsche made with the SEC may point to a model that can be used by other fund shops.
The DB Absolute Return Strategies
fund will be a closed-end fund-of-funds investing in hedge funds. Initially, Deutsche was hoping to offer the fund on a retail basis. The SEC, though, refused to O.K. a fund with that type of structure.
Deutsche responded to the SEC concerns by adding provisions to the fund limiting its distribution to qualified investors. The definition of the qualified investor is the same as that used by the hedge funds themselves (a net worth in excess of $1 million or income of $200,000, or more, in the past two years). The fund will also carry a minimum initial investment of $50,000.
One advantage of registering the fund for Deutsche is that unlike hedge funds, the registered fund will not be limited in the number of shareholders it sells to. Deutsche will also not face the marketing restrictions on the fund that hedge funds face.
This type of structure may therefore be popular with fund firms seeking alternative products that are able to leverage their distribution capabilities. The funds, if they catch on, may also enable fund distributors to act as marketing and distribution arms of hedge funds.
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