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Alternative asset manager Ermitage Group has announced the launch of two London Stock Exchange-listed notes that provide professional investors with tax-efficient access to offshore funds of hedge funds.
The notes, which will be open for subscription on June 1, are to be issued by Japanese investment bank Nomura and will use its flagship exchangeable bond platform. There is a minimum investment requirement of GBP50,000.
The Equity Long/Short Note tracks the performance of two of Ermitage's longest established funds of hedge funds, the European Absolute Fund and North American Absolute Fund, both with track records dating back to 1999 and combined assets under management exceeding USD200m.
Within the structure, a 90 per cent allocation is made to Ermitage's Europe Absolute Fund and a 10 per cent allocation to the North America Absolute Fund. With the four-year global equity bull run now apparently at an end and with high levels of trading volatility, Ermitage says the product aims to offer investors an effective way to capture the market upside while reducing downside risk.
The Resources Note tracks the performance of Ermitage's USD110m Resources Fund, which enables investors to profit from opportunities in global commodity markets in an actively managed structure.
The firm says investors are increasingly attracted to the diversification benefits of including commodities within a portfolio. Since its launch in June 2005, Ermitage's Resources Fund has outperformed passive commodity indices on an absolute and risk-adjusted basis.
As exchangeable bonds, the two UK-listed notes will be written over a 10-year term. They benefit from recent regulatory changes and have been established as onshore vehicles subject to the UK's capital gains tax rules. The change is expected to offer professional UK investors access to an increasing choice of hedge fund products that have been largely inaccessible to date.
Ermitage says the notes are being launched into the market at what is widely believed to be an optimal time, where funds that can go long or short are becoming increasingly popular with investors. Both products focus on capturing market opportunities, while providing greater levels of downside protection than traditional long-only investments.
The average annual performance of Ermitage's funds combined in the Equity Long/Short Note has exceeded 8 per cent since December 1999, a period during which global equities, as measured by the MSCI World Index, returned just 1 per cent.
The Ermitage Resources Fund tracked by the Resources Note has delivered an average annual return of 13.68 per cent since its launch in June 2005, outperforming the S&P GSCI, a commodities index, with less than half of the index's volatility.
The notes have been created in partnership with IGS Group, the consultancy and advisory firm established by former HFR Asset Management Europe managing director John Godden. IGS advises on product design, market positioning and distribution for hedge funds, funds of funds and service providers, and provides technical advice on regulatory impact, market assessment and marketing of funds and investment products.
'These two new products are designed for wealth managers, private banks and sophisticated on-shore investors, giving a wider group of investors the opportunity to access some compelling specialist hedge fund strategies,' says Ermitage chief executive Ian Cadby.
'Paul Myners, our group chairman, has been a long-term advocate of broadening the accessibility of hedge funds, and these products will increase the choice for professional investors based in the UK, without punitive tax implications.'
Ermitage chief investment officer Jonathan Wauton says: 'Following its launch in 2005, the Resources Fund has delivered better absolute and risk-adjusted performance than passive commodity indices, with significantly less volatility.
'Equally, our European Absolute Fund, which represents 90 per cent of the Equity Long/Short note, has a proven track record spanning two bear market periods, protecting capital and outperforming many of its peers over the past six months.'
Garry Topp, Nomura's director of equity and fund derivatives, adds: 'The hedge fund sector is crowded, yet Ermitage stands out for the quality of its investment management and consistently high performance. We expect professional investors to welcome the launch of these notes and the tax efficiency and access to Ermitage [funds] they offer.'
Ermitage Group, which has offices in Jersey, London and New York, was acquired by its management and investment trust Caledonia Investments in March 2006 from South Africa's Liberty Group. A provider of investment services to institutions, pension funds and private clients, the group made its first hedge fund investment in 1984 ands now has more than USD2.8bn in assets under management. It also provides a private client services through its global wealth management services division.
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