Fund of hedge funds manager Liongate Capital Management has announced the opening of the Liongate Commodities Fund, which completed a first year’s trading in January after having been s
Fund of hedge funds manager Liongate Capital Management has announced the opening of the Liongate Commodities Fund, which completed a first year’s trading in January after having been seeded with USD40m, to external investors.
The firm says that the fund’s success in remaining profitable during one of the most challenging years in commodity market history has proven its ability to capture the upside of commodity bull markets while protecting capital in commodity bear markets.
The fund aims to have a non-directional bias across market cycles, targeting a combination of long biased and relative value strategies during commodity bull markets, while rapidly reallocating to pure relative value and short biased strategies in commodity bear markets.
The fund’s active allocation strategy seeks to protect against the inherent volatility of commodity cycles while participating in the secular commodities trend.
In the 13 months to end January 2009, the Liongate Commodities Fund returned +0.36 per cent in USD terms. For the same period, the Goldman Sachs Commodity Index lost -51.27 per cent and the MSCI World Index lost -45.54 per cent.
Current liquidity provisions allow over three quarters of the portfolio to be changed within three months, a sufficient amount of time to test and capture macro economic trends.
Randall Dillard, chief investment officer for the fund, says: "Commodities are not a single asset class and fundamental analysis of individual commodities provides opportunities in all market cycles. Buying the GSCI Agriculture Index and selling the GSCI Energy Index, for example, would have returned 93 per cent since August 2008.
"Over the next quarters, a well constructed fund of hedge funds will be able to protect capital more efficiently than long-only investments, while maintaining the option to participate cautiously in a market recovery. This is particularly true in commodity markets where the current large contango destroys the returns when investing in a passive index. Critical requirements for a successful fund are sufficient liquidity and active management; leveraged beta in the form of hedge funds will no longer suffice. Managers must add alpha, not only in the form of trading superiority, but also in terms of operational quality and investor transparency."
The fund invests primarily in mid-sized hedge funds specialising in specific commodity sectors, such as precious metals, oil or sugar.
The fund is currently invested in 20 hedge funds, and expects to be invested in between 20-30 hedge funds on average.
Allocations by sector in February 2009 were: energy 29 per cent, agriculture 28 per cent, base metals 17 per cent, precious metals 14 per cent and other 12 per cent.
Paul Bentley, Liongate’s head of investor relations, adds: ‘We are seeing at the moment a good deal of client interest in our Liongate Commodity Fund offering. Over the past few months, in which many fund of hedge fund investors have been stuck with restricted liquidity, investors have a particularly high interest in commodity and other global macro strategies which focus on the most liquid securities. In respect to Liongate in particular, investors are pleased that we have managed our funds with good liquidity and have not restricted our investors who have needed to take cash back.’
