Barclays note offers retail access to high-flying Liongate fund of hedge funds
Liongate Capital Management has announced the launch of the Liongate Multi-Strategy Tracker GBP, a Barclays Bank-issued note offering retail investors the opportunity to access a strongly-performing fund of hedge funds in a low denomination and tax-efficient format.
The Liongate Multi-Strategy Fund is a USD1.4bn fund of hedge funds with a diversified portfolio of complementary niche strategies that has delivered annualised returns of 18.35 per cent since its launch in April 2004 and 17.02 per cent in the 12 months to the end of October, compared with a 6.95 per cent return for the HFR Global Hedge Fund Index.
The Liongate Multi-Strategy Tracker GBP Note is open-ended, provides daily liquidity on a matched basis, is available in a low-note denomination and is eligible for tax-efficient Pep, Isa, Sipp and SSAS investment and pension wrappers in the UK.
The minimum investment is GBP50,000. By making the note available as an onshore qualifying investment, UK-resident investors can benefit from the capital gains tax allowance, currently GBP9,200 per annum, and taper relief will apply, which is especially advantageous for basic rate taxpayers. Gains by UK resident individuals investing directly into the fund would be taxed as income and would not benefit from the annual CGT exemption.
Liongate Capital Management says it is paying the structuring fee for the note to ensure that investors receive the same GBP share class returns at direct investors, along with the tax benefits. The note is aimed at investment managers acting for end-investors on a discretionary basis, investment managers with appropriate hedge fund expertise acting for investors in an advisory capacity, and managers investing on behalf of a fund.
'The fund's objective is to produce positive, consistent returns while maintaining low volatility, and in particular to protect returns during falling markets,' says Liongate partner Randall Dillard. 'Investors often sacrifice volatility in order to obtain higher returns. This fund seeks to remain in the sweet spot of providing both superior returns while maintaining low volatility.
'The fund is constantly seeking to reallocate capital quickly towards return and away from risk. We began to substantially short credit strategies in August 2006, a year ahead of the credit crunch that we are seeing at present.
'A number of hedge funds are thriving in the current market volatility, with sharp share price movements in certain sectors offering significant opportunities. The hedge funds to which we have been allocating have benefited from the recent turmoil, and investors in funds of hedge funds now have the opportunity to ascertain which funds of funds are truly adding value.'
His colleague Jeff Holland adds: 'The large inflows into hedge fund assets has led to a fall in returns among mainstream hedge fund strategies for many investors in the last few years. But that not need be the case for everybody. Our focus on niche, relatively undiscovered investment strategies has allowed the fund to produce superior returns, handsomely outperforming the hedge fund indices, year in year out.
'The expertise we provide is in identifying promising strategies, conducting thorough analysis, blending the strategies and actively reallocating as required in order to provide positive, absolute returns that are uncorrelated to the market.'
The Liongate Multi-Strategy Fund aims to deliver a consistent annual return to investors of between 12 and 18 per cent. A range of 30 to 40 hedge fund managers are chosen for investment and are expected to generate active alpha primarily through exploiting market inefficiencies, regardless of market conditions or peer performance.
The dollar class of the fund has returned 82.89 per cent since its launch in 2004, with high Sharpe and Sortino ratios of 2.47 and 5.49 respectively. The high Sortino ratio indicates that the majority of the fund's volatility is generated from upside volatility and underlines its focus on consistently moving the fund away from risk while still achieving superior returns. This contrasts with a return for the HFR Global Hedge Fund Index of 21.05 per cent over the same period, with a Sharpe ratio of 0.11 and a Sortino ratio of 0.15.
Founded in 2003, Liongate Capital Management is an independent asset manager and research firm specialising in the creation and management of funds of hedge funds for institutional and private investors. The firm, which currently manages a total of USD1.6bn, attributes its superior returns to combining a macro-driven, top-down capital allocation process with rigorous quantitative analysis and research.
Dillard was previously a managing director and head of the merchant banking operation at Nomura in London, which included managing proprietary and private equity investments using the firm's internal capital, and covered equities, fixed income, high-yield bonds, derivatives, structured financing, forex and private equity. He previously worked in investment banking with Merrill Lynch.
Holland was previously a vice-president in corporate and investment banking worked at Deutsche Bank, having earlier been a consultant with the global capital markets group at PricewaterhouseCoopers. Ben Funk, a Liongate partner since 2006 who oversees research and quantitative risk management, previously worked in the institutional securities division at Morgan Stanley Capital International.
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