Bank adds to its fund of hedge funds range with a product aimed at conservative investors
American Express Bank has launched an open-ended fund of hedge funds aimed at conservative investors.
The Global Market Neutral Fund of Funds Conservative portfolio, which is available to UK investors, is the third fund of hedge funds from American Express and is designed to stand alongside its moderate and higher risk products.
The fund is managed by Sam Perruchoud, senior director of alternative investment and structured products in Geneva. He said: 'The basic idea behind this product was a very conservative fund of funds that would be complementary to short-term bonds in a portfolio. Interest rates are dropping so this product will have a better risk/reward profile than short-term fixed-interest products or cash.'
The fund will target higher returns than the three-month T-Bill. Perruchoud said the aim is to return about 5% to 9.5% per year with a volatility of 3% to 4%.
The fund carries a 1% management fee and a performance fee of 5% of profits. Minimum investment is $100,000. There is a one-year lock-up period and quarterly redemptions are available after that.
The fund is incorporated in the Cayman Islands and began investing on 1 November. It is a market independent fund that will invest in equity market neutral and arbitrage strategies, including convertible, volatility, arbitrage and fixed income.
It will invest in 17 underlying funds, including the Ikos Offshore Arbitrage fund, Artemis Relative Value fund and American Express Bank's own Advisory Fixed Income Arbitrage fund.
The portfolio will control risk by investing no more than 10% with any individual manager, no more than 25% with funds in the same investment strategy and a maximum of 5% in funds using substantial leverage.
It will also have a very low turnover of managers. Perruchoud said: 'We believe that having steady weightings in the long run will be more beneficial than trying to time market movements one way or another.
'Timing the market is very tough as a fund of funds investor because you have to wait to redeem investment in funds, by which point things might have changed. We spend more time designing the mix of funds. We have to be sure managers are highly complementary and are solid enough to go through difficult market periods.'
This mix of funds has been tested in recent months. Perruchoud said: 'Judging from the returns we have seen, we are comfortable with our approach. Merger arbitrage doesn't do so well in these conditions but volatility arbitrage does, so they complement each other.'
Perruchoud also manages the Global Market Neutral Fund of Funds Moderate portfolio, which is positioned to invest in medium and long-term bonds and targets higher returns of between 8% and 12% per year, with a slightly higher volatility of between 4% and 5%.
November will see the launch of a guaranteed version fund of funds portfolio from the group and a fund of funds investing in start-up hedge funds is planned for January 2002.
Perruchoud said: 'Capacity is definitely a problem, although, if we are already invested with a fund manager, it is less of an issue. A lot of funds soft-close at half a billion and then grow into one billion with existing investors. As an initial investor, we will have some room to grow and time to start looking for a replacement.'
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