Lehman targets seekers of hedge fund-type returns with MarQCus product; Svensk prices long-short offer

By Kenneth Lim

Boston, Feb. 19 - Lehman Brothers continued to introduce foreign currency products Tuesday, capitalizing on the recent interest in its MarQCuS strategies.

Lehman plans to price a series of three-year 0% return-enhanced notes linked to its Macro Quantitative Currency Trading Strategies (MarQCuS) Portfolio A index, a monthly rebalanced portfolio of the six Lehman MarQCus indexes, which themselves are rules-based foreign exchange trading indexes.

If the underlying index is unchanged or higher at maturity, the payout will be par of $100,000 plus at least 2.95 times the index return. The notes, which do not have principal protection, have full exposure to any negative index return.

There is a fee of $1,800 per note.

Lehman launched the MarQCus strategies in August 2007, and the move has received an "excellent" response, said foreign exchange structuring senior vice president Michael Wilson.

That popularity is "in part due to investors looking for uncorrelated absolute returns, but also because investors at this time really value transparency in both strategies and performance," Wilson said.

"MarQCuS delivers both," he added. "We've seen a huge appetite globally for these types of products, across a broad range of clients including hedge funds, pension funds, insurance companies, corporates and high net worth investors and have closed transactions in multiple different forms, not just notes."

Wilson said MarQCus addresses foreign exchange through two main strategies.

"The first two are carry strategies on both G10 and emerging market currencies which utilize an optimization process to select the long and short currency weights on a monthly basis," Wilson said. "Such carry strategies have been utilized by institutional investors for many years. We deliver these strategies to investors with an innovative risk filter to reduce return volatility, especially when related to EM currencies.

"But MarQCuS goes beyond carry, also offering four 'fundamental strategies.'

"These utilize the concept of cross-market systematic predictability to generate returns for investors.

"Simplistically put, currency transactions are often a by-product of investment decisions made in other asset classes, and so by looking at market prices in another asset class there can be predictive power for associated currencies. A simple example might be the price of oil and the Norwegian krone against the U.S. dollar."

Wilson said the portfolios of both the carry and fundamental strategies have the potential to ride out tough markets.

"While the returns on carry strategies tend to be more correlated with other asset classes and perform less well in times of risk aversion, we find that the portfolio of both carry and fundamental strategies is able to consistently deliver positive returns," Wilson said. "For investors looking for hedge-fund type returns but with a transparent strategy, visible returns and lower fees then MarQCuS-linked products make a lot of sense."

Svensk prices long-short offering

Elsewhere AB Svensk Exportkredit sold a substantially sized $101.76 million offering of 0% outperformance notes tied to a long position in the S&P 500 Banks index and a short position in the S&P Financial Select Sector index via Goldman, Sachs & Co.

The notes, which are due Aug. 31, 2009, will pay par plus the difference between the two index returns if the long index outperforms the short index. The payout at maturity will be par minus the difference between the two index returns if the long index underperforms the short index.

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