Bermuda-based Invesdex Ltd has launched MarketPlus Separately Managed Contracts (SMCs), a new alternative investment vehicle that simulates a fund of funds.
Valere Costello, President and CEO of Invesdex, emphasised that SMCs are not a fund of funds, but simulate a fund of funds. He said: "This is similar in concept to separately managed accounts in that the contracts are owned by the investor and the trading responsibilities have been contracted to the managers. But you have the significant advantage that SMCs are limited liability."
He added: "Once a manager group is selected, investors can monitor, on an intra-day basis, the performance of their SMCs online. They also have the ability to make new investments or redemptions daily, and even change their mix of managers".
MarketPlus is Invesdex's flagship online OTC investment instrument that previously was targeted to active, self-directed investors; MarketPlus SMCs now broaden the appeal of MarketPlus by catering to hedge fund investors who want to pick their range of managers.
MarketPlus contracts are entered into with Invesdex Capital and are linked to the performance of one or more futures contracts, including equity and debt indices, currencies, commodities, and a money market index.
Using SMCs investors can allocate funds among a number of professionally managed MarketPlus contracts. Invesdex helps the investor select the appropriate managers and styles from Invesdex's database of absolute-return strategy managers, but the investor has the final say in the ultimate composition of the manager group.
MarketPlus SMCs enable investors to build a portfolio that mimics a fund of funds, but (1) is custom-suited to their specific needs; (2) costs less; (3) has daily liquidity and transparency (mitigating manager and structure risk); and (4) might receive favourable tax treatment.
In certain jurisdictions, MarketPlus is deemed to be a contract for difference; in which case, depending upon the citizenship and residence of the investor, gains are treated as capital gains and only recognised upon redemption.
SMCs already are finding a niche client base. In February, Invesdex launched a five-manager cohort for an institutional investor, and another cohort, expected to consist of six to eight managers, is slated for early March. Several more cohorts are in the works.
Invesdex's database of hedge fund managers has been increasing in size, now numbering over 20, but the pace of growth is likely to slow.
Mr Costello said: "I doubt we will grow the database much beyond 40 or 50 managers in total. We have a critical mass at this point, so our emphasis continues to be on quality not quantity. We only want to forge relationships with top-performing managers that have demonstrated persistence in their ability to generate absolute returns with relatively low volatility."
Manager cohorts generally will target net absolute returns of at least 15 per cent per annum with lower-than-equity-market volatility; results will vary, depending upon risk tolerances and cohort composition.
Invesdex says SMCs are not for everyone and they do have certain limitations. First, they only are available to non-US investors, and the minimum investment is US$2 million (and typically US$5-10 million).
The high minimum is necessary in order to ensure sufficient diversification across managers and strategies, while meeting the underlying minimum requirements of the managers. Further, the platform only provides for futures-linked investment strategies, so not all hedge fund strategies can be duplicated.
Invesdex management also revealed that the launch of the SMCs would be followed by several more functional improvements to MarketPlus over the coming weeks, including the addition of non-US exchange traded assets and after hours trading.
Background Note: Invesdex Ltd is a Bermuda-based boutique financial services company that specialises in products and services for sophisticated investment advisers, fund managers, and qualified investors throughout the world. Invesdex is the marketing agent for MarketPlus and MarketPlus SMCs.
The offering counterparty of MarketPlus contracts, Invesdex Capital Ltd, fully collateralises its liabilities to MarketPlus investors with liquid assets held by Butterfield Trust, the Trust subsidiary of A-rated Bank of Butterfield.