Liongate Capital Management has entered the hedge fund market with the launch of a high return fund of hedge funds, Liongate Multi-Strategy Fund.
In their first five months of trading since launch on 1 April 2004, co-managers Randall Dillard and Jeff Holland have produced returns of 8.72%, in a difficult market for funds of hedge funds. Liongate Multi-Strategy Fund was ranked first in the InvestHedge fund of hedge funds rankings, one of the largest industry databases, based on latest available figures for the last three months (May-July 2004).
Liongate's investment philosophy is one of active management across a wide range of strategies, tilting the portfolio towards strategies that are expected to outperform. For example, in the current market conditions of low volatility and lack of direction, the fund has been weighted towards niche strategies. Liongate regularly re-evaluates the weightings of its strategies and will expel hedge funds that fundamentally diverge from their expected risk-reward parameters.
Dillard said: "If most funds of hedge funds sit at 2%-3% volatility we are happy to take that up a notch. We want to bump up to more aggressive volatility, e.g. volatility of 8%-10% - and that should show on the return side. We will aim for annual returns of 15% to 20%."
The other key aspect of Liongate's investment is a focus on operational risk assessment and due diligence, which are central to Liongate. "We are focused on making higher returns but without compromising on the quality of that performance", Randall Dillard added.
As a rule, Liongate will not invest in start-up hedge funds, preferring to see a minimum 18-month track record before investing.
Dillard added: "Our focus on seeking the lowest correlation to capital markets has stood us extremely well. In April and May 2004, which were very difficult months for hedge funds, we achieved positive returns, handsomely outperforming the industry".
With USD 50 million in assets under management, gained within two days of opening, the fund is targeting a shift among institutional investors towards higher return products, according to Dillard.
Compared to most other funds of hedge funds the Liongate fund is currently focusing away from relative value strategies and towards niche managers who are offering better returns. This could change as Dillard and Holland monitor market changes and how these may affect hedge fund strategies.
Dillard said: "We believe that certain strategies will not be as interesting as they were in the past because there are too many people chasing them, for example convertible arbitrage. For more aggressive funds of hedge funds these will not offer enough returns so we are currently limiting exposure to relative value. We are currently focused on finding idiosyncratic strategies that make the portfolio more diverse."
Liongate has spent a year researching the best managers and is aiming for an optimal number of 25-35 in the new portfolio.
Dillard's track-record as head of Merchant Banking at Nomura provides Liongate with the ability to invest a wide range of higher yield investment strategies and to assess risk.
Liongate Multi-Strategy Fund refers to Liongate Multi-Strategy Fund Segregated Portfolio (the "Fund"), a segregated portfolio of Liongate SPC. Liongate SPC is an open-ended multi-class investment company incorporated with limited liability in the Cayman Islands.
The minimum investment in the fund is USD 1 million. The fund is offered in four currency denominations: US Dollar, Euros, Sterling, and Japanese Yen. Fees charged on the Cayman domiciled fund are 1.5% for management and a 20% performance fee.
Liongate Multi-Strategy is managed by Dillard and Jeff Holland. Dillard was previously head of the Merchant Banking operation at Nomura in London, which included managing proprietary and private equity investments for Nomura, where he worked for eleven years. As one of Nomura's most senior non-Japanese managing directors, he focused on making money using the firm's internal capital
His proprietary investment activities at Nomura included equities, fixed income, high yield convertible bonds, high yield derivatives, high yield forex and private equity, the breadth and expertise of which is applied to Liongate's investments. Upon retiring from Nomura, he founded Liongate at the request of former institutional clients. Randall Dillard was previously in investment banking with Merrill Lynch International and is a graduate of law from Pembroke College, Cambridge University.
Jeff Holland joined Liongate from Deutsche Bank, where he was a vice president within corporate and investment banking. Jeff Holland is a certified public accountant (CPA) in the US, the equivalent of a Chartered Accountant in the UK. He studied finance at Baylor University in the US where he graduated summa cum laude and he undertook a master's degree in finance from the London Business School.