NEW YORK -- Plusfunds.com has entered into a joint venture with the Bermuda Stock Exchange that will enable hedge funds to be securitized and easily traded.
Hedge fund shares registered, cleared and settled by the Euroclear and Cedel clearing firms will be listed on the BSX in an electronic market called Global Fund Trader Plus, a joint venture 50% owned by Plusfunds and 50% by the exchange, that will be open 22 hours a day, six days a week.
Global Fund Trader Plus will be the exclusive and only electronic trading market on the BSX for all hedge fund shares with real time net asset values and daily third-party risk analysis.
Plusfunds is the most recent entrant of firms offering the trading of hedge fund interests by institutional investors over the Internet.
But according to Christopher Sugrue, chief executive officer of the New York-based firm, its systems are light years ahead of what other firms offer.
"Plusfunds is both a timely answer to the inherent barriers preventing the hedge fund industry from achieving full potential, and an engine capable of transforming the business. We believe Plusfunds.com will help hedge funds become a globally accepted asset class," he said.
To provide independently generated, real-time net asset values of hedge funds, Plusfunds hired Ernst & Young LLP, New York, which in turn joined with San Francisco-based software firm Advent Software Inc. to develop the systems necessary to provide the NAVs.
For risk analysis, Plusfunds is working with Standard & Poor's Corp., New York, and Riskmetrics, New York, which have developed the technology through which Plusfunds will provide its clients with value at risk numbers, which measure the downside risk of a portfolio, and other risk information for each hedge fund traded over the system on a daily basis.
"We have engines giving the value of the funds every second of the day," Mr. Sugrue said. "Without the data, you can't trade. We're verifying everything we're being told. We see every transaction of the hedge fund."
Every time a trade comes in, Mr. Sugrue explained, it is put in the Ernst & Young NAV measuring system to constantly update the NAVs of funds trading through Plusfunds.
"We're only working with funds that choose to be part of the platform," he said. "We tell the funds that we'll never tell what they own, just what they're worth."
Fifty-four funds have agreed to abide by Plusfunds' standards so far; the firm hopes to eventually have between 500 and 1,000 funds. "If we get 700 funds, we'll have 80% of the market," said Mr. Sugrue. "You don't have to have that many funds to dominate the market."
Currently the system only trades off-shore funds; it expects to trade U.S.-based hedge funds by March 1. Mr. Sugrue said Plusfunds is working with the Securities and Exchange Commission to register its system.
The differences between Plusfunds and competitors such as Hedgeworld.com and HedgeFund.net are like "night and day," he said. Hedgeworld only has a "strategic relationship," not a full joint venture, with the BSE and trades cross on its systems only once a month, he said.
Johann Wong, president of Hedgeworld, said, "I don't believe we really compete with them. Their focus is providing real-time, tick by tick, information to investors. They're focusing on something that goes very deep and involves fewer funds. We focus on the larger universe provided by our TASS+ database, where you can do research on any fund."
In what sounds like an offer, "We'd be happy to work with them," said Mr. Wong.
Alex Shogren of HedgeFund.net announced on Jan. 24 that the HedgeFund.net website will launch a platform to report daily returns and risk analysis of hedge funds, including both domestic and offshore funds.
The venture came about not because of what Plusfunds is doing, he said, but through discussion with investors, after the downfall of Manhattan Investment Fund Ltd., a hedge fund that allegedly reported false numbers to hide its losses.
He expects 300 to 400 hedge funds to go along with his plan when the service is launched in 30 to 60 days, he said.
However, he has given up on his plan to have trading of hedge fund interests over the HedgeFund.net website.
"Most investors we talked to were more interested in daily valuations than liquidity," he said.