June 8 (Bloomberg) -- HSBC Holdings Plc’s U.S. securities division will no longer extend structured financing to hedge- fund investors to leverage their investments, according to people familiar with the company’s plans.

The bank is halting the financing by its structured-funds products division and eliminating an unspecified number of jobs in New York, said one of the people, who asked not to be identified because the information hasn’t been made public. The group reports to Steven Phan, global head of the investment access and solutions groups in London, the person said. Phan declined to comment.

“Hedge fund-linked strategies tie up a lot of capital because of the illiquidity of the underlying hedge fund,” said Keith Styrcula, chairman of the Structured Products Association, a New York-based industry group. “Those were among the very first lines of business that firms were cutting back on.”

Funds of funds, which invest in hedge funds on behalf of clients, lost an average of 16 percent in the last 12 months, according to Chicago-based Hedge Fund Research Inc. Some, including those offered by Union Bancaire Privee, Banco Santander SA and Man Group Plc, lost ground after investing in Bernard Madoff’s $65 billion fraud.

Hedge funds are private, lightly regulated pools of capital whose managers can buy or sell any assets, bet on falling and rising asset prices and participate in profits from money invested.

HSBC, based in London, has been eliminating jobs this year. The firm said in April it will shut its stock-research and trading businesses in Japan. About 40 jobs were to be eliminated, according to two people familiar with the cuts. The bank also eliminated 100 positions at its Hong Kong private- banking unit in April and announced it would eliminate 1,200 jobs in the U.K. in March.

To contact the reporter on this story: Saijel Kishan in New York at skishan@bloomberg.net; Josh Fineman in New York at jfineman@bloomberg.net.

Last Updated: June 8, 2009 14:09 EDT