SGAM alternative beta fund offers synthetic hedge funds exposure

SGAM Alternative Investments is launching the first Ucits III compliant mutual fund as a Fonds Commun de Placement under French law that targets a risk/return profile corresponding to the global hedge fund universe.

Using the concept of alternative beta developed by SGAM AI, the so-called T-Rex (Total Return Exposure) strategy aims to replicate synthetically the performance of the Hedge Funds Research Index, with a dynamically managed portfolio using liquid financial instruments, such as futures, on major asset classes including equities, bonds and currencies.

The allocation process of the fund is based on a quantitative model, created by SGAM AI's structured asset management team. The model automatically calculates the allocation offering a high correlation to the performance of more than 2,000 hedge funds tracked in the HFR database, without subjective input from a fund manager. In order to maintain this high degree of correlation, positions are reweighted every month.

This approach is intended to deliver performance in line with an average hedge fund in the HFR universe and can be considered to be a liquid and transparent complement to a standard hedge fund allocation.

As a result, the investor has access to a financial product with a risk/return profile correlated to the hedge funds universe and with no minimum subscription. It offers daily liquidity and transparency, with the fund's portfolio allocation published continuously on the websites www.sgam.fr and www.sgam-ai.fr.

The fund aims to attract investors including asset managers and private bankers looking for an original underlying basis for structured products, such as leveraged notes on the hedge fund profile, as well as retail investor to which the fund offers additional portfolio diversification and an improved risk/return profile.

Alternative beta is described by SGAM AI as the replication of estimated hedge fund allocations in traditional asset classes. The firm cites academic studies that argue hedge fund investments can on the whole be broken down into long/buy positions and short/sell positions in traditional asset classes, and that positions are regularly revised by the hedge fund managers. Applying this approach, it is possible to build a portfolio of dynamic strategies designed to replicate the overall allocations in the hedge fund industry, and that attempts to replicate performances by taking up equivalent positions in these asset classes.

SGAM Alternative Investments is a wholly owned subsidiary of Société Générale Asset Management with EUR62bn in assets under management at the end of June and 370 employees worldwide. The SGAM Group as a whole, including TCW and BAREP, manages a total of EUR74bn in alternative investments assets, of which the SGAM AI structured asset management group manages EUR50bn though guaranteed structured products, structured credit products, index funds and ETFs and dynamic money market funds. SGAM had a total of EUR393bn in assets under management at the end of June.

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