Deutsche pulls plug on unpopular hedge fund product

Deutsche Bank subsidiary Deutsche Xenon will not proceed with AlphaPlus 3, the third in a series of structured products backed by hedge fund-of-funds, after it raised what’s understood to be only $2 million.

Deutsche Xenon is understood to have returned applications to financial planners some time after the June 15 cut-off date for the AlphaPlus 3 raising. The marketing of AlphaPlus 3 is understood to have been handled by Deutsche Asset Management (DeAM) for the first time, after the investment bank marketed the first two tranches with DeAM assisting in product design. AlphaPlus 3 also broke with the precedent set by the first two products in that the hedge fund-of-funds underlying it were managed by Topiary Funds Management, a Deutsche bank Group entity. Previously, external managers Ivy, Silver Creek and Meridian were used. A fund rater at Standard & Poors, Simon Scott, said the product design of AlphaPlus 3 should not have been so similar to its predecessors, given the change in its underlying managers. He said the permanent leverage rate of 2.5x across both underlying funds was high, and the product was made expensive by the fact that management fees were charged on both the equity and the borrowings. A Deutsche Bank spokesperson said the timing of the offer was to blame for the failure of AlphaPlus 3. “;We had strong feedback on the quality of the offer from researchers and dealer groups, but with the changes to superannuation coming up, people were more focussed on products providing that super tax benefit,”; she said. Another structured product that closed on June 15 after an offer period one month less than AlphaPlus 3’s, Perpetual Protected Investments – Series 1, is understood to have raised about $150 million. Coincidentally, Deutsche Bank arranged the capital protection for that product. AlphaPlus 3 was unprotected, in common with its predecessors.