London-based Dexion Capital has a suite of three fund of hedge funds, all of which are listed on the London Stock Exchange and are closed-end vehicles. The Dexion Absolute Fund, with GBP773million in total net assets, has seen its share price fluctuate this year, spiking at GBP151 in March before falling to GBP135 amid the market chaos of August. It has since recovered, trading at GBP141.5 at the time of writing and has been attracting interest from investors over the last couple of months.
With global hedge funds down -1.47 per cent this year according to Hedge Fund Research, and FoHF down -2.58 per cent, investors are having to grapple with some pretty tough decisions. So despite the hammering they’ve been getting post ’08, maybe FoHF, in these times of uncertainty, can come into their own and give investors some timely reassurance. Dexion chairman Robin Bowie (pictured)certainly believes so.
“The FoHF model remains strong. I don’t think there’s a better way to have your money managed. It’s a specialist game and you need people with the knowledge and experience to select and deselect managers and construct portfolios,” enthuses Bowie.
Dexion Absolute invests in around 40 underlying managers and follows a multi-strategy mandate. The fund has a 33 per cent allocation to equity l/s (approximately 13 managers) but given the weak and volatile nature of the markets this year, Bowie concedes: “Performance has been disappointing in the equity l/s sector. Allocations are going to be lowered over the next few months.”
The fund, advised by Aurora Investment Management, is down -3.06 per cent YTD because hedge funds have, by and large, taken risk off the table. Some of the underlying managers have, says Bowie, delivered alpha, “just not enough”. 2011, it seems, has largely been characterised by fund managers and investors being defensively positioned. “While you’re limiting the downside you can’t capture the upside. Having said that I agree with the defensive stance. The critical issue is what happens next in global markets?”
Strategies that Aurora might look to increase allocation into within the Dexion Absolute fund are credit and macro according to Bowie. At present, they have an 18 per cent and 12 per cent weighting respectively within the portfolio. It’s all about identifying the quality of the managers and the quality of the opportunity set for a FoHF. That’s what drives performance and makes it successful.
One emerging trend that Bowie is picking up on is that more and more investors are bringing assets into onshore structures like UCITS. “The onshore market is where we’re seeing growth in investor demand. We’re in the middle of developing some new alternative investment onshore products to be announced over the next couple of months,” he says.
Staying ahead of the curve and delivering solutions to meet investors’ needs is paramount in today’s market climate where fear and lack of confidence are pushing people to hold cash. Having attended numerous investor meetings over the last couple of weeks, Bowie has seen some strong themes emerge: “Firstly, equity volatility and poor returns have been a negative. There’s less confidence that, long term, investors are going to get returns by being exposed to equity beta. Secondly, government bond yields are so low that they represent a risk rather than a hedge in portfolios. They no longer have a diversification benefit.”
The fact that investors have reverted to holding cash has given them some comfort because they’re outperforming their benchmarks. Critically, in Bowie’s opinion, the real challenge will be when markets change. “They’re going to have to look at other ways of investing. What we at Dexion want to do is bring alternative products that meet investors’ income and return requirements,” says Bowie.