HFR Asset Management (HFRAM) is launching an Emerging Managers fund of hedge funds on an innovative controlled infrastructure platform.
The HFR Emerging Managers Fund will initially comprise 21 funds each with two years or less of tenure. Barclays Capital has an exclusive arrangement to offer structured products on the fund, which will be the first time principal protected notes have been issued on a dedicated Emerging Manager fund of funds.
The fund is due to launch on 1 December. John Godden, Managing Director of HFRAM, said: "This launch comes at a time when disappointing returns from the mainstream have coincided with growing readiness from institutional investors to invest in younger managers. Our extensive research proves that younger, emerging managers tend to outperform the older players."
Antti Suhonen, head of fund-linked derivatives structuring at Barclays Capital, adds: "Barclays Capital is committed to offering clients tools to access a wide selection of opportunities within the alternative investment market. The manner in which HFR have built the Emerging Manager Fund incorporating all of their experience in risk control has allowed us to bring our full range of structures into play. We are able to offer clients products with very efficient characteristics due to the level of infrastructure, information and liquidity offered by HFR."
Barclays Capital has one of the largest and most active fund-linked derivatives units. It has constructed a range of structures including certificates, principal protected notes and open-ended structures, linked to the Emerging Managers fund of funds to meet investor appetite and the regulatory requirements of the various European countries.
HFRAM is setting up its Emerging Managers platform in direct response to evolving marketing conditions in hedge fund investing. Whilst historically encompassing higher risk, young managers have frequently delivered better returns to hedge fund investors over recent years because of their ability to capitalise on niche investment opportunities and enter and exit portfolio positions without negative impact on the market as a whole. HFRAM will seek to reduce exposure to the higher level of operational risk typically associated with younger funds by applying its industry benchmark risk management systems across each and every fund in its new Emerging Managers Fund.
"The HFR Emerging Managers platform offers a significant complement to the existing HFR portfolio of Fund of Fund investment opportunities," said Godden. "The Emerging Managers Fund will combine highly motivated managers with the ability to deliver alpha together with the stringent and rigorous controls of HFR's historic risk management systems. Barclays Capital has provided some very well costed and constructed structured products to enhance the proposition for clients."
These risk controls include daily independent pricing with positions, trades and cash positions being monitored and reconciled with managers on a daily basis and verified by prime brokers and involve strict enforcement of risk guidelines.
HFRAM has an established team with an enviable track record of identifying early stage or under-followed managers. The emphasis on full transparency that is central to HFRAM's investment approach across the whole manager platform will enable forward-looking manager selection and portfolio management.
The sophistication of its data gathering and analysis techniques means that HFRAM already has a wealth of information available on the emerging managers eligible to join its new platform. HFRAM looks at more than 400 emerging managers every year of which only 21 will initially be chosen for participation in the Emerging Managers Fund, representing the 'best of breed' amongst young managers.
Eligible funds will be reviewed and evaluated on the following criteria: Market Opportunity (potential sources of return); Manager Background; Investment Process; Portfolio Structure (appropriate to the opportunity and objectives of the fund); and sound Business Infrastructure, and will be selected only if they score highest marks in every category. Managers achieving two years of tenure will be removed from the platform in an orderly manner on a periodic basic and replaced with new managers being added as opportunities arise.
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