Armajaro Asset Management (AAM) has announced the launch of the Wentworth Fund.
Armajaro Asset Management (AAM) has announced the launch of the Wentworth Fund.
Armajaro says it has ‘created an innovative method of investing in long short equity hedge fund managers and stripping out the equity market risk. The resultant ‘synthetic’ equity market neutral fund gives investors the benefit from the stock selection skills of selected managers (the Alpha); with minimal exposure to the equity market (Beta).
The Wentworth Fund provides exposure to the Equity Market Neutral Strategy, the strongest risk-adjusted performing Hedge Fund Strategy over time with very low correlation against equity markets and Fund of Hedge Funds, and is the purest representation of the ‘Portable Alpha’ concept’.
Despite investor expectations of different return patterns, many hedge fund managers are in essence beta managers and run their portfolios with varying levels of equity market exposure, which results in losses when equity markets fall. Recent studies such as those by EDHEC support this and show that most hedge fund strategy returns are highly positively correlated with equity market returns. In fact, this correlation tends to come at the worst possible time when equity markets are falling. For example an equally weighted hedge fund index has a 70 per cent correlation with the S&P 500 index.
According to Armajaro: ‘Equity market neutral is one hedge fund strategy that historically has shown little correlation to equity markets. This is because such hedge funds are designed to have minimal exposure to equity markets and don’t rely on the equity market rising to generate returns. Instead they achieve their returns from good stock selection. However, like all precious things pure equity market neutral investments are rare. It’s a difficult strategy to access because of the scarcity of pure equity market neutral hedge funds’.
According to CSFB/Tremont Equity Market Neutral accounted for only 4% of all Hedge Fund strategies. By developing a synthetic equity market neutral fund, Armajaro has circumvented the issue of scarcity and lack of capacity for market neutral hedge funds.
To create the product, Wentworth Fund invests in equity long/short hedge fund managers on a managed account platform. Each manager trades the managed account as his strategy dictates – typically with some equity market exposure. Armajaro calculates and hedges the net aggregate equity market exposure (positive or negative) of each hedge fund manager’s portfolio with an appropriate number of equity index futures contracts on a daily basis.
The result is a fund that is designed to have minimal exposure to equity markets and generates a return from the stock selection skills of the underlying hedge fund managers. Armajaro believes the returns from this strategy are around 10 to 12%p.a. with a standard deviation of 4 to 5%. A further feature of Wentworth is that it offers daily liquidity to investors.
Commenting on the announcement, Neil Heywood, Sales & Marketing Director of Armajaro Asset Management, said: ‘A Fund such as Wentworth that offers pure alpha is always the perfect addition to all portfolios as it offers a return stream that will behave independently of markets and other investments’.
Armajaro Asset Management LLP (authorised and regulated by the Financial Services Authority) was formed in July 2002 as an alternative asset management company. The original members are Neill Brennan, Richard Gower, Anthony Ward and Armajaro Holdings Limited. The Asset Management Partnership has over USD 400m in assets under management. It has an Equities division, which manages the Coolum Fund and a Commodities division, which manages the Armajaro Commodities Fund.
