Mon, 07/07/2008 - 07:00
European alternative fund of funds manager Ermitage Group has announced the launch of a niche fund of hedge funds, the Ermitage Directional Fund, with an initial investment of USD45m.
The Directional Fund focuses on achieving consistent absolute, risk-adjusted returns with a diversification across asset classes, markets, trading styles and holding periods. It provides access to a diversified portfolio of macro, trend following and non-trend following managers deploying discretionary and systematic trading methodologies.
According to Ermitage, directional strategies have historically exhibited low correlation to equity markets, offering investors a degree of portfolio insurance. The new fund will aim to profit from all market conditions, including market shocks, targeting 5 to 10 per cent above Libor, alongside a relatively conservative risk budget of between 5 to 6 per cent standard deviation.
The firm expects an environment characterised by persisting higher levels of trend and market volatility to create significant opportunities across all asset classes. Commodity prices are currently trending strongly higher whilst equity, bond and currency markets are being driven by credit concerns and recession and inflation fears. Ermitage believes that the opportunity set created by these factors will offer excellent alpha potential over the medium term.
The fund offers diversification in terms of markets traded, strategies (trend, counter-trend and statistical) and time horizon (minutes to weeks), and aims to deliver alpha from long and short positions.
It features dynamic and aggressive asset allocation based on changing market conditions, using managed accounts where possible as a mechanism to reposition the portfolio quickly as required. The emphasis is towards non-trend following managers who predominantly trade on a very short-term time horizon and on an intra-day basis, and who are well positioned to benefit from the general increase in volatility and trend volatility.
The fund is currently geared toward shorter-term statistical managers since the high trend volatility ideally lends itself to this strategy. Trend-following managers within the portfolio at launch are seeking to benefit from trends in the commodity markets.
The fund is available in euro, US dollar and sterling currency classes, with a minimum initial investment of EUR125,000 Euros or equivalent. Annual management fees are 1.5 per cent, and there is a 10 per cent performance fee with high watermark. Subscription is monthly with 90 calendar days' notice for redemptions.
'Ermitage's Directional Fund has been built to offer investors attractive risk-adjusted returns together with low correlation to global equity markets,' says group chief executive Ian Cadby.
'This is the latest in a concentrated fund of hedge funds development programme by Ermitage which includes the Clean Resources Fund, Opportunities Fund (multi-strategy) and Fixed Income Fund, all created to capitalise on specific market opportunities presented to hedge funds.'
Last week Ermitage announced the recruitment of Daniel Eichner, head of credit at US fund of hedge funds manager Lighthouse, as head of relative value strategies. Eichner, who earlier
managed money directly at two hedge funds covering distressed and value equities, having worked on Goldman Sachs's New York proprietary distressed desk, reports to Ermitage's chief investment officer Jonathan Wauton.
An US citizen, Eichner is based in London but will relocate later this year to Ermitage's recently-opened New York office. As head of relative value strategies, he will have a key role in manager research and selection for Ermitage's asset selection and event-driven funds, as well as several of the group's multi-strategy and customised portfolios.
'Following our MBO two years ago, we have built out our overall investment team, adding highly talented specialists, and we are delighted to appoint Daniel to this important position at this exciting time in our development,' Wauton says.
'Ermitage launched its first relative value fund of funds back in 1997, and as a group we now allocate more than a third of our alternative assets to managers deploying relative value strategies. I am confident that Daniel's expertise and leadership will create value for investors across our unitised funds and customised portfolios.
Eichner adds: 'Our team is very well positioned to capitalise on the huge relative value strategy opportunities in distressed corporate credit, distressed asset-backed securities, asset-backed lending and fixed-income arbitrage, to name a few.'
Ermitage Group was acquired by its management and investment trust Caledonia Investments from South Africa's Liberty Group in March 2006. A provider of alternative investment services to institutions, pension funds and private clients, the group made its first hedge fund investment in 1984 and launched a European manager seeding programme in 2003.
In addition to funds of hedge funds, managed accounts and customised solutions for individualised mandates, Ermitage also provides a private client services through its global wealth management services division. The group has offices in Jersey, London and New York and had USD2.8bn in assets under management at the end of February.
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