three former investec managers unveil their first offering, a macro fixed interest fund
Ex-Investec fund managers Paul Brain, Andrew Seaman and Mark Johns have launched their first hedge portfolio, a macro fixed interest fund, aiming to achieve returns of more than 10% a year.
The fixed interest team left Investec Guinness Flight in January this year, where they ran some £1bn in fixed interest assets in the group's offshore bond fund range.
Brain was lead manager of the Investec GF Sterling Bond fund as well as the dollar-denominated High Income portfolio at the group. The relatively unrestricted mandate of the dollar fund has formed the rationale behind the hedge portfolio.
MSG & Partners, the company all three have joined, is offering the Stellar Funds Ltd High Yield Hedge Fund, which launched at the end of October with $25m in seed capital from Liberty Ermitage, the distribution agents for the product.
The High Yield Hedge Fund carries a 1.5% annual management fee and a performance fee of 20% of performance above a high watermark. The minimum investment in the fund is $100,000. It is incorporated in Guernsey as a protected cell company with limited liability.
Paul Brain said: 'This fund doesn't fit into any neat box. We call it a macro fixed income fund rather than a long/short fixed income fund because it is more about picking the right interest rate trends in the market.
'We are trying to assess whether the economy is slowing down, and therefore will Treasuries go up and does the opposite occur when markets pick up?'
Brain emphasised the fund can shift between different fixed income assets such as sovereign debt, corporate bonds and emerging market bonds.
He said: 'Hopefully, we will be in the right market at the right time. Rather than just picking high yield corporate bonds, which can be hostage to volatility, we can use government bonds and gilts to smooth out some volatility.'
The fund targets returns between 10% and 15% with low volatility and will be no more than two times leveraged. Brain said: 'Most fixed income hedge funds use a lot of leverage to extract value. This is because the spreads can be fairly small. We will be only up to two times leveraged because we are trying to capture trends, not spreads, with this fund.'
Ian Cadby, group executive director for Liberty Ermitage, said: 'They have got a very interesting product in the current climate. Many hedge fund of funds have got a lot of cash coming in and are trying to get strategies that are non-correlated to the market.
'There are also a number of arbitrage managers, many European long/short managers; while this fund has a low correlation to those popular strategies.'
Since launch the fund has only been 15% invested. Brain explained: 'The day before we launched our long bonds went up 6% or 7% and emerging markets collapsed so we have been sitting in cash, which is a little bit boring. However, the Treasury market has completely unwound, so there is opportunity there and emerging markets are worth shorting again.
'The slowdown in global growth will not turnaround quickly and emerging markets continue to struggle so we will be long government bonds and short emerging markets, in particular Latin American debt. There are also some pretty attractive opportunities in the corporate bond market such as car companies and in particular Ford. We also bought BA because of its corporate restructuring and the drop in the oil price.'
The team uses its proprietary, strategic income approach to 'streamline the decision making,' as Brain put it.
Brain said: 'In the case of the Treasury market, there are three factors that drive it: the growth factor, the inflation factor and the three-month interest rate factor. Our model will tell us that Treasuries are cheap but not why or whether they will be cheap in six months' time.'
Paul Bruns and Elaine Parkes
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