Rothschild plans to introduce a hedge fund assessment capability into its portfolio management servi...
Rothschild plans to introduce a hedge fund assessment capability into its portfolio management service. It is the first such service to be offered by the London office giving it the foundation of a multi-manager capability.
Rupert Robinson, who heads up Rothchild's private clients division, has initiated discussion with various third party groups and individuals involved in alternative asset management although the actual format of the new product has not been decided yet.
The service will apply to both its multi-manager product and its private client services.
He said: "As a group, it's a natural extension to our multi-manager range and it's something we are determined to get into. We're exploring whether or not to do it internally, to outsource it or to buy in the expertise."
Robinson confirmed that Robert Burdett and Gary Potter, who head up Rothschild's portfolio management service, will be involved in the development and ultimately the management of the product. Although it is at an early stage, it is clear that new systems will have to be developed to allow for the idiosyncrasies of hedge fund structures.
Rothschild's current process is based on looking at 14 qualitative factors on a weighted basis. In terms of performance, Burdett looks at specific monitoring versus expectations, for example, what a particular manager and his style is expected to achieve. Sale disciplines are key.
Burdett said: "We have a qualitative and quantitative process that is very robust but with hedge funds there are certain processes which are irrelevant to long-only funds. Our processes need to be adapted. There is a particular need to focus more on due diligence and counterparty risk.
"Hedge funds are a hot topic at the moment but some companies are in danger of jumping on the bandwagon and seeing it only from the back. We want to look at all sides of it."
The hedge fund product will eventually be offered both to the private and retail side of the business.
Robinson said: "Initially, we'll be offering it to our private clients but we believe there is potential demand in the institutional market."
If plans go ahead, Rothschild will be the latest UK institution to offer a multi-manager hedge fund facility. Barings also recently entered this market, and others including Investec and Lazards are believed to be considering launching similar products.
Recent surveys have shown that funds of funds are one of the biggest growth areas in terms of assets flowing into European hedge funds.
The European institutional market has as yet been slow to enter the alternatives market. It seems that most are keen to move into this area via a fund of funds or multi-manager service, because they feel they lack the internal capability to undertake sufficient due diligence, qualitative assessment and risk management.
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