F&C launches offering for event-driven fund of hedge funds
F&C Management has launched a public offering for F&C Event Driven, a Guernsey-domiciled closed-ended investment company that will invest in a global portfolio of event-driven hedge funds and whose shares are expected to start trading on the London Stock Exchange on June 22.
F&C Partners, the group's fund of hedge funds business which will act as the investment adviser and undertake day-to-day discretionary management of the assets, is co-owned by portfolio managers Anthony Culligan and François Barthélemy.
The new fund aims to achieve a target return of between 8 and 12 per cent per annum net of costs with a target volatility of between 5 and 8 per cent, through investment in a portfolio of at least 20 listed and unlisted event-driven hedge funds worldwide that seek to benefit from one-time events such as mergers, takeovers, reconstructions and other corporate actions.
F&C Partners says the investment process will follow a bottom-up selection approach to produce a portfolio diversified across a number of event driven investment strategies and to provide returns between strategies and markets that have only a low correlation.
F&C Event Driven may invest up to 10 per cent of the portfolio directly in specific event positions, complying with UK Listing Authority requirements such as not directly conducting shorting activities while such activities are prohibited, and it may take positions that hedge the general exposure of the fund to market conditions or volatility.
F&C Partners believes that event driven strategies can prosper in a wide range of market conditions, but that the outlook is now particularly favourable because corporate earnings are strong, and balance sheets are not highly leveraged by historical standards.
Consequently, corporate activity is strong and rising, with record levels of mergers and acquisitions activity recorded over recent years. F&C Partners believes this activity will continue as corporations adapt to an increasingly global commercial environment.
The manager also believes that where a company is undervalued or where a restructuring of a company is likely to lead to significant upside, value is most likely to be extracted outside the realm of the listed market, within the private equity market. F&C Partners believes event-driven hedge funds will continue to be significant players in the process that transfers value from the public to the private market.
Event-driven hedge funds have historically been adept at generating positive returns from distressed situations that result from lower general market liquidity and/or bear markets, so F&C Partners believes they will continue to provide good returns even in the event of a significant deterioration of general economic conditions.
In addition, because the strategy may require capital to be committed for extended periods, a closed-ended fund may be at an advantage because the strategy will not be disrupted by the impact of redemptions.
F&C Partners, which will act as the investment adviser and undertake day-to-day discretionary management of the assets, is ultimately 60 per cent owned by F&C Management Limited and 40 per cent by the two partners and portfolio managers, Anthony Culligan and Francois Barthelemy. At the end of March 2007, it had approximately GBP504m in assets under management, of which about 50 per cent was invested in event-driven hedge funds.
F&C Event Driven will be able to apply net leverage of up to 25 per cent of its net asset value. Initially the company's board plans to use this ability only for the purpose of efficient portfolio management and to provide working capital but reserves the right to use leverage for investment purposes in appropriate circumstances.
The company will have a provision for discount management under which the board may implement a tender offer for up to 25 per cent of the outstanding shares if the share price has been at an average discount of more than 5 per cent to the net asset value per share over the previous 12 months. The board may also purchase up to 14.99 per cent of the shares in the market in order to address any imbalance between the supply of and demand for shares, to increase the NAV per share or to maintain a narrow discount to NAV.
The fund will pay an annual management fee of 92.5 basis points as well as a performance fee of 10 per cent payable where the net asset value per share at the end of an accounting period exceeds 108 per cent of net asset value per share at the beginning of the period or the high water mark at which the performance fee was last paid, whichever is the greater.
F&C Balanced Alpha Fund of Hedge Funds, an open-ended investment company managed by F&C Partners, and Friends Provident have indicated that they each intend to subscribe for shares in the offering and that their aggregate shareholding at launch will comprise between 50 and 75 per cent of the company's initial issued share capital. The placing of up to 170m shares will close on June 15.
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