UK-based hedge fund adviser Dexion Capital is targeting top-end intermediaries with a fund of hedge fund that aims to produce annual gains of 12%-15% a year.
Dexion Absolute, a £36m Guernsey registered closed-ended investment company, has issued a C share which is looking to raise £45m-£65m. The shares are London listed. The portfolio, which is fully hedged into sterling, is run by US-based hedge fund investor Harris Associates. Harris Associates has run the Aurora LP since 1988, which Dexion Absolute aims to replicate in terms of risk and reward. At present, there is an 83% overlap between the two portfolios.
Dexion Absolute was originally launched in December 2002. Its largest shareholders include Co-op Insurance, with a 29.4% equity stake, Rathbones with 14.3% and Barclays Private Bank with 13.4%. Between launch and 1 August 2003, the share price has risen 8.5%.
There are no initial fees to introducers because Robin Bowie, director at Dexion Capital, said: "A big upfront fee base kills returns, especially in a low return environment."
Even so the total expense ratio (TER) on the fund looks to be about 3%, assuming the fund achieves its performance targets.
Dexion Absolute pays Dexion Capital 1.5% a year, out of which 0.5% a year is available to qualifying places, those who invest more than £1m, with the remainder split between Dexion Capital and Harris Associates.
There is also a performance fee of 10% of gains, assuming the fund goes up at least 3% a year and subject to a high watermark. If the fund rose 14% in a year this would add a further 1.4% to the annual fee of 1.5%, creating a TER of 2.9%.
Bowie said the cost was not cheap but argued that the characteristics of the portfolio were of a quality to justify the TER. Aurora LP has lost money, net of charges, in 31 of the 186 months between January 1988 and June 2003, according to Harris Associates.
During this period, it has lost money on an annual basis during two calendar years, 1998 when it declined 2.22% and 1994 when it returned -4.26%. Aurora invests in a range of hedge fund strategies, including short selling, distressed securities, equity strategies, event-driven and relative value arbitrage.
The vehicle, which has no structural gearing and pays no dividends, has a continuation vote if shares in Dexion Absolute have traded at an average discount to NAV of 5% or more in the 12 months to the fund's year end. If this continuation vote is not passed a wind up or restructure will take place.
From launch on 19 December last year until 1 August 2003 Dexion Absolute has traded at an average mid-market premium to NAV of 1.4%. The cost of the C share will be capped at 1.75% of funds raised.
The initial placing price per C share is 100p with an initial NAV per C share of 98.25p.
The initial placing closed on 25 September but the shares are available on the London Stock Exchange. The main market maker is ABN Amro.
Bowie added that the C share should bring new buyers to the fund which should help to keep it at a premium.
Staying invested could prove lucrative
Consider lasting powers of attorney
Less environment, more governance threatens to undermine firms' green credentials
Evidence your compliance