Investec Private Bank this week launched Nova Alpha, an innovative fund of hedge funds. CIO Kim Hillier explains the thinking and strategy behind the product launch.
HW: How do you define your target client base and investment approach?
KH: Our investment service and advice is designed to meet the needs of high net worth individuals with a net asset value of GBP£5 million and investable assets of over GBP£3 million.
We are totally independent & untied to Investec Bank (UK) Ltd, and we provide bespoke investment solutions for our clients, selecting strategic partners where appropriate.
We view our investment approach as a diagnostic partnership with each client based on a mutual understanding. This approach is underpinned by a rigorous investment and product selection process.
HW: Explain the reasons for the timing of this product launch
KH: The reasons flow from the current market environment, where HNWIs are experiencing volatile equity markets, low bond yields, tight credit markets, high property values and downside risk with lack of investment opportunities.
At the same time, there has been significant expansion in the number of HNWIs investing in hedge funds. These investors are showing growing realisation towards the favourable risk/return characteristics and low correlation of hedge funds to traditional asset classes and are increasingly accepting hedge funds as a distinct and valuable asset class.
HW: Why did you choose the fund of hedge funds route?
KH: Hedge funds use a variety of investment strategies and styles. Identifying and monitoring the appropriate hedge fund strategy, assessing and selecting the fund manager and monitoring the fund requires a diverse and complex skill set.
Multi-strategy funds of hedge funds address many of these issues by investing in portfolios diversified by manager and strategy.
The aim of these multi-strategy funds of hedge funds is to provide consistent long-term investment returns with low risk through a blend of different strategies and managers.
Factors such as risk, return and volatility can be managed more efficiently through better diversification, use of experienced high quality management and enhanced liquidity.
This endeavours to achieve the primary objective of capital preservation and absolute returns over time.
HW: Explain why you developed three different routes with which investors can access Nova Alpha?
KH: We wanted to offer our investors real choice and flexibility in how they gained exposure to hedge funds within the product.
So we created these three routes into the product which offer the investor the following options: direct investment into the Nova Alpha fund; investment via a capital guaranteed structured note; leveraged investment through a structured note but without a capital guarantee.
Each of the three options offers a different level of risk and expected return and are respectively suitable for different types of investors.
HW: How much are you seeking to raise with Nova Alpha?
KH: In the first instance, we are looking to raise in the region of US$10 million.
HW: Where and how are you distributing the product?
KH: We are focusing on our private clients as defined earlier, however, we will also demonstrate the product to a select group of third parties who have had a historic relationship with us.
HW: Is this your first structured product in the hedge funds arena?
KH: No, we had previously launched a capital protected product with US-based Permal, with US$, GBP and Euro classes, exposed to the Permal Master Fund. We successfully raised US$20 million for that product.
HW: What other product launches can investors expect from you and when will these take place?
KH: Because each of our high net worth clients have diverse and different needs, we do not have predetermined asset allocation model portfolios. Hence, we focus on providing truly bespoke solutions, which seek to meet each client's specific requirements. Product launches are therefore the result of tailor made strategic asset allocations and the personal investment objectives of the clientele we service.
In terms of timing, whatever we do needs to make sense in a macro environment, it can't exist in a vacuum. We prefer to go to investors with relevant products as the client need or investment opportunity arises.
It is clear to us that investors are keen to participate when you are offering a product with embedded and meaningful value, so we will continue to focus our efforts on unearthing that value on their behalf.