fixed interest-biased forsyth alternative income fund aims to protect investor capital while being able to pay out an annual income
Forsyth Partners is set to launch an income distributing fund of hedge funds, investing mostly in fixed interest strategies but with a touch of global macro funds added for extra return.
Aimed at the retail investor, the Forsyth Alternative Income fund's overriding aim is to protect the investor's capital while paying regular income at an initial targeted rate of 7%, although this target will vary depending on economic conditions.
Capital will not be sacrificed for the sake of maintaining a strong dividend. There will be a performance fee of 20% of outperformance, but only on returns above 7% per year, and the fund will run with a high watermark. Forsyth's target is to have the volatility of sovereign debt with the income of high yield.
A small proportion of the fund will not be in hedged strategies, with 5% in long-only bond funds, although it has not yet been decided whether to invest the fund into corporate or sovereign debt portfolios.
The company is currently debating whether there is room for significant capital appreciation in sovereigns, as the yield is unlikely to be sufficient to help the fund hit its income target.
Income will be distributed twice yearly, and taken from income paid by the various holdings and regular profit taken on capital gains.
The initial portfolio of the product will comprise funds chosen from Forsyth's multi-strategy fund of hedge funds.
The fund will hold only fixed interest strategies until the fund takes in some more assets. Rossen Djounov, who will manage the fund, hopes that within six months he will have enough assets to start putting money into global macro hedge strategies.
This strategic choice for the global macro portion of the portfolio will be formulated with the assistance of Andrew Hunt, Forsyth's consultant economist.
Funds will be considered only if they have a minimum six-month track record, and then they are given a trial run for six months.
Forsyth has commitments of $10m for its fund and hopes to raise $20m within the first month.
The fund will continue to diversify across holdings as it grows in size. The company is working on getting institutional mandates.
If successful, the fund will increase the assets substantially. Djounov said he is not worried about capacity constraints.
'We could invest $100m tomorrow, although beyond that, we would need more time to find new managers. We will review the fund at $500m.'
The fund is listed on the Dublin Stock Exchange, although not for trading purposes. There will be fortnightly dealing, on the first and 15th day of every month. Minimum investment is $20,000 with subsequent investments of at least $5,000.
The fund is available in sterling, dollars, euros and yen.
A placement fee of up to 3% is available. The annual management fee is 1.25% and there is a 20% performance fee on returns above 7%, subject to a high watermark.
There is also a redemption fee of 3%, falling to zero over three years.
A graduated trail fee is available for business of more than $250,000.
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