AIP Mutual Funds, whose flagship Alpha Hedged Strategies Fund was launched in September 2002, is celebrating its fifth anniversary having topped USD650m in assets and comprehensively beaten its benchmark.

The fund, managed by Alternative Investment Partners, has delivered total annualised returns of 12.01 per cent over one year, 9.20 per cent over three years and 7.64 per cent over five years to the end of September, compared with 4.47 per cent, 4.06 per cent and 2.09 per cent respectively for the Lipper Equity Market Neutral Funds benchmark.

The USD650m Alpha Hedged Strategies Fund has been a pioneer in the open-ended multi-strategy hedged mutual fund arena, providing broad access to specialised hedge fund managers. The fund is designed to minimise equity market exposure and volatility by employing a variety of absolute return-oriented hedged strategies.

'Combining real hedge fund strategies and mutual fund features has really resonated with advisors seeking access to conservative portfolio risk behaviour and strong risk-adjusted performance,' says Lee Schultheis, chief investment strategist and founder of AIP.

'We have avoided the 'hedge fund replicator' approach where short-cuts in product design have left many investors feeling short on returns and long on market correlation. We are pleased to have recently passed both the five-year mark and USD650m level in assets under management.

'The recent market shakeout in quant model long/short strategies has accelerated AIP's inflows as the multi-strategy approach provides a true hedge against volatile markets. We are also getting increased traction with our newer Beta Hedged Strategies Fund, which is really just a more aggressive mix of our platform of managers and strategies, for investors seeking higher potential returns and needing a lesser degree of risk control.'

Schultheis says AIP continues to attract a broad range of investors, recently including endowments and foundations, defined benefit retirement plans and bank trust departments, as well as the firm's core channel of financial adviser intermediaries.

'Since we've been competitive with Hedge Fund Research's HFRI Fund of Funds Conservative Index over the past five years, we are viewed as having walked the walk by the marketplace, and are not just the latest in the recent wave of new products that claim to be able to mimic hedge funds in some indirect manner, but where early results are not meeting expectations.'

The fund has a portfolio that operates much like a conservative hedge fund-of-funds, and is accessible to all investors. AIP currently has sub-advisory agreements with more than 20 hedge fund managers to manage the individual portfolio strategies within the Alpha Hedged Strategies Fund in proprietary separate accounts.

The fund does not invest in third-party hedge funds, but can sell short up to 100 per cent of net assets, use leverage of up to 50 per cent of net assets, and can employ any strategy where the securities involved can be priced on daily market value. Because it is structured as a mutual fund, it also offers including daily liquidity and no lock-ups, accreditation requirement or performance fees.

By controlling custody of assets, valuation and leverage on the underlying security pools, as well as having 100 per cent transparency for all positions and trades, Schultheis says AIP can mitigate a number of the primary risks that lead to occasional problems with underlying hedge funds holdings with the traditional private fund of hedge funds structure.

'Financial intermediaries want a broad array of quality hedge-fund strategies for their clients, but they prefer the mutual fund structure and features, and are not willing to sacrifice the non-correlative, alpha-driven behaviours that have made hedge funds so popular with sophisticated institutions and high net worth individuals,' Schultheis says. 'That is the market niche that we feel AIP Mutual Funds has effectively addressed.'

The Alpha and Beta hedged strategies funds are open-end mutual funds that invest their portfolios in a manner similar to a conservative and more aggressive fund of hedge funds respectively. They employ a multi-manager approach to a variety of hedged alternative investment styles, but each with a liquid portfolio of its own securities, using the limited amounts of leverage and short-selling allowable in open-ended mutual funds.

The funds provide broad exposure to a variety of strategies including distressed securities and special situations, long/short equity, equity market neutral, international long/short equity, global long/short equity, specialty sector long/short equity, equity options overlay, global hedged income, merger arbitrage, fixed-income arbitrage and convertible bond arbitrage.


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