The French asset manager Latitude Capital Management has launched two onshore single strategy hedge funds specialized in Japanese equities.
Latitude Alpha is a long/short market neutral fund. Its investment universe is made up of the 430 largest and most liquid stocks in Japan (companies included in both MSCI Japan and Nikkei 300 indices). The long and the short legs are always equal in size and the fund is not sector neutral. The targeted volatility is capped at 8%, a level compatible with the maximum leverage of 4 times.
The fund managers dynamically allocate the factors driving stocks' performance, using a proprietary quantitative model, which sorts the stocks on fundamental analysis criteria. The fund can be traded weekly, with a two-day notice, has no redemption fees or lock up period. The 2% management fees cover all administrative charges; the 20% performance fee is calculated with the equalisation method, a 12-month Euribor hurdle rate (2.84% for 2006) and high water mark.
Latitude Japon, a long only fund, where the beta is dissociated from the alpha, implements the 'portable alpha' strategy. The beta comes from Japanese equity index futures (100% of the fund) and the alpha is generated by the investment (50 to 100%) in the Latitude Alpha fund. The fund can also be traded weekly with no lock up, two-day notice and management fees of only 0.25%.
Onshore hedge funds are new products in France. The French market authority (Autorité des Marchés Financiers - AMF) issued a new legal framework during summer 2005, which allows the creation and marketing of single strategy hedge funds in France under very strict conditions. A special authorisation by the AMF is requested for the asset management company. A new category of funds has been created, the ARIA EL.
These funds are fully regulated and authorised by the AMF: the Latitude Alpha fund falls into that category. The AMF imposes numerous control levels on the company and on the funds:
the asset manager license requires the company to have an internal risk controller
the custodian must be a French bank and retains the full responsibility of the assets
the administrator must be independent from the asset manager
the funds must be audited by an independent auditor
the company must employ a compliance officer
This new regulatory framework allows more flexibility for French asset managers within a totally regulated environment.
Background notes: Latitude Capital Management was created by two seasoned Japanese equity specialists: Jean-François Bouilly and Stéphane de Saint Hilaire have each 20 years of experience on the Japanese markets and have worked together for 11 years at Crédit Lyonnais Asset Management, in Paris and Tokyo.
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