Bermuda-based hedge fund manager Osmium Capital Management Ltd. has come up with an innovative way of allowing its investors to steer clear of the vagaries of major currency values — by denominating a class of shares in its fund in gold instead of money.

The Osmium Special Situations Fund, one of a minority of hedge funds to gain positive returns in 2008, will incorporate the new "Gold Class", which will be denominated in gold troy ounces.

Chris Kuchanny, the former ABN Amro trader who runs the fund, held a conference call yesterday to talk about the new product. He explained the concept in simple terms. "If you invest x million dollars, then that buys x ounces of gold," Mr. Kuchanny said. "If say, your money bought 100 troy ounces of gold and the fund gains ten percent, then your investment will become worth 110 troy ounces."

The fund hedges its exposure to gold by selling gold for cash and buying gold forward on a monthly basis.

The Gold Class option gives investors the opportunity to effectively invest in gold while that investment is simultaneously exposed to the hedge fund.

Osmium believes that Bermuda is the only domicile to have approved a gold denominated hedge fund class.

Gold has traditionally been regarded as a "safe haven", an investment that can gain popularity when equity markets plunge. Yesterday it was trading at around $885 per ounce and it has more than tripled in value over the past 10 years.

Foreign exchange markets have been volatile amid the turmoil on world markets with the US dollar and the Japanese yen surging and the British pound plummeting.

"We believe that this is a new way to invest in a hedge fund," Mr. Kuchanny said in a letter to clients. "Given the challenging market environment, some investors want exposure to gold, which has historically been a good source of value during times of economic crisis.

"Many investors are already heavily exposed to the major fiat currencies and wish to diversify into gold, without losing their ability to invest."

The Osmium Special Situations Fund has generated an annualised return of 12.8 percent annualised since its inception in March 2005. Last year, while large losses were the norm in most types of investment fund, the Special Situations Fund gained 2.8 percent and is up 0.5 percent so far this year.

"It's been a challenging environment for most hedge fund strategies," Mr. Kuchanny said. "We have actually managed to protect capital through one of the most difficult environments we are likely to see."

The fund oversees around $178 million and Mr. Kuchanny said he hoped to attract new investors and boost assets to around the $500 million mark. It specialises in investing in global arbitrage and events like spin-offs and acquisitions.

Hedge funds are targeted at wealthy investors and institutions. The minimum investment in the Osmium Special Situations Fund is $1 million.