close finsbury absolute return offers a london-listed investment trust of arbitrage funds
Close Finsbury Absolute Return (CFAR), a London-listed investment trust of arbitrage funds, will aim to return between 8% and 15% per year.
Aimed at UK institutional and private client investors, the Guernsey-based investment trust will focus exclusively on arbitrage hedge funds, based predominantly in the US.
The subscription period for the trust closes on 26 November and the portfolio will be fully invested by the end of January 2002. The trust is denominated in sterling, carries a minimum investment of £10,000, features a 1.25% fee for the sponsoring broker, Teather and Greenwood, and a 1.25% management fee split between Close Finsbury and Coronation.
The investment trust of hedge funds will be a mirror of an existing fund of hedge funds offered by the trust's advisers, Coronation International, a subsidiary of the South African group Coronation Investment Holdings. The group manages $1.1bn of assets across nine funds of hedge funds.
The CFAR portfolio will mirror Coronation's CIH Relative Value fund, a fund of arbitrage hedge funds that, according to the group, has achieved annualised returns of 11.44% in dollar terms since its inception in January 2000.
The Relative Value fund invests in a range of arbitrage strategies including convertible bond, fixed income, distressed securities, merger, volatility, index and event-driven equity long/short. Like this portfolio, the CFAR will hold some 35 funds at launch but typically will hold between 20 and 35.
Ken Kinsey-Quick, chief executive and chief investment officer of the multi-manager division at Coronation, said there will be very little portfolio turnover.
'This is because valuation of arbitrage managers is more a science than an art. Inefficiency exists in the market; the question for us is, can the manager capture that. That is down to the robustness of the manager's infrastructure. For us it is more a quantitatively-driven process,' he said.
Kinsey-Quick uses the Efficient Frontier theory, which holds that by combining hedge funds with bonds and equities in a portfolio, depending on the weightings of the three asset classes, the investor gets closer to an ideal of lower risk and increased returns.
The Relative Value fund on which the Close trust is based has a Sharpe ratio of 3% and standard deviation of 1.95%.
Kinsey-Quick said: 'Looking at the market backwards over the past two years, if you could have made 10% from equities it would have been exceptional. We aim to achieve positive returns that exceed cash returns in a negative investment environment.'
The trust will invest no more than 25% in any one strategy and no more than 7.5% with any one manager.
Some 20 managers, with a minimum 2.5% weighting each, will make up the core of the portfolio, Kinsey-Quick said.
Three quarters of the underlying managers in the trust will be US-based and the remainder will be managed from London.
The trust will apply to be a member of the Association of Investment Trust Companies to gain a listing in the new investment trust of hedge funds sector.
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