Baring Asset Management has launched its fifth long/short equity hedge fund, the Baring Emerging Markets Absolute Return Fund, with USD20m in assets under management. The fund is available to institutional and other professional investors and aims to deliver returns in excess of 20 per cent per annum, with a maximum volatility of 20 per cent.
The Baring Emerging Markets Absolute Return fund offers investors a quantitative investment strategy based on stock return forecast models developed by Marlies van Boven, head of quantitative analysis at Barings, who also manages the fund. The fund is one of the first long/short emerging market quantitative funds to be made available to investors.
The fund invests in the 17 largest emerging markets across Asia, Latin America, Europe, the Middle East and Africa, which Barings believes will provide the fund with ample levels of liquidity and enables its manager to hedge out market risk while still allowing access to the alpha available in emerging markets.
'With an investment universe of over 900 stocks, it's challenging for any manager to track the investible universe in emerging markets,' Van Boven says. 'Through our innovative multiple-factor model and optimisation process, we are not only in a position to research this universe, but can invest without any emotional bias.
'We can therefore seek to provide investors with an efficient risk/return trade off and a relatively low risk profile for an emerging market fund. The fund will hold around 70 long and 30 short positions, based on a bottom-up stock selection model.
'The current reduced appetite for risk has impacted significantly on emerging market equities and, as a result, volatility has been high. The Emerging Markets Absolute Return Fund aims to be less sensitive to market movements and will target emerging market alpha with a reduced level of risk through its stock-specific bottom-up approach.'
The manager aims to identify long-term shifts in market direction and make strategic adjustments to market exposure if required. The quantitative strategy is designed to enable the fund manager to avoid expensive emotional asset allocation in response to short-term market fluctuations. The manager will also look to hedge out market and systemic risk through swaps, futures and exchange-traded funds, minimising transaction costs and borrowing fees.
The Baring Emerging Markets Absolute Return Fund is available in both US dollar and euro share classes, is domiciled in Ireland and listed on the Irish Stock Exchange. There will be a management fee of 1.5 per cent and a performance fee of 20 per cent, with high water mark.
'We have a long history of investing in emerging markets,' says Paul Graham, head of alternatives, business development and distribution. 'This fund is a natural extension of Marlies and her team, in an area that holds considerable investment promise. I believe our history and experience in this area gives us a key competitive edge in these markets.'
The existing Barings long/short equity funds are the Baring EMEA Absolute Return Fund, the Baring European Smaller Companies Absolute Return Fund, the Baring Japan Absolute Return Fund and the Baring China Absolute Return Fund.
Baring Asset Management is part of the MassMutual Financial Group, whose flagship business, Massachusetts Mutual Life Insurance, is one of the largest life insurance businesses in the US.