New Star Asset Management is making a fourth offering of Hedge ETS, a London listed daily tradable security. The Hedge ETS provides investors with exposure to the RBC Hedge 250 Index, which has closely tracked returns on hedge funds and outperformed other recognised investible hedge fund indices.
The index is designed to be a representative, investible benchmark of the performance of the hedge fund asset class. The index offers extensive diversification across nearly 260 hedge funds and nine distinct strategies and inclusive selection criteria that encompasses funds which may have lock-ups, redemption gates, low liquidity or are presently closed to investment.
Between its launch in July 2005 and the end of August this year, the index has closely tracked returns on hedge funds and outperformed other recognised hedge fund indices, delivering an average annualised return of 10.0 per cent with 3.8 per cent liquidity.
Launched last November, Hedge ETS has raised more than USD310m in three placings and two smaller tap issues. The fund offers daily liquidity, the ability to redeem shares close to net asset value and is available as unleveraged or three times leveraged shares. It obtains exposure to the index through swap contracts with Royal Bank of Canada.
New shares are being issued under a global placing (outside the US) and a public offer in the UK of C shares that will convert to ordinary shares next January. UBS Investment Bank is sponsor to Hedge ETS, while it and Royal Bank of Canada Investment Management are acting as placing agents.
Two types of C shares are being offered, 1X shares that offer unleveraged exposure to the performance of the index and 3X shares that target three times exposure to its performance. Both types of share are available in euro, sterling and US dollar denomination, with a minimum investment of EUR50,000, GBP40,000 and USD75,000 respectively.
To assist in the management of any discount to net asset value, up to 14.99 per cent of the shares in issue may be purchased in the market. In addition, each shareholder will have the opportunity to redeem up to 100 per cent of their shares at close to net asset value on the first business day of January or July in each year, subject to providing at least 120 days prior notice and the Hedge ETS directors exercising their discretion to offer redemptions.
Under the expected offering timetable, the prospectus has been published on October 17 and the placing closes on November 22. Dealings in converted ordinary shares will commence on January 3.
'Hedge ETS offers unique access to the performance of the hedge fund asset class through a well constructed index with the added benefit of daily liquidity,' says Ravi Anand, director at New Star Asset Management.
'We believe that the RBC Hedge 250 Index is the most representative investible benchmark for hedge fund industry returns. This fourth offering is in response to continued demand from investors. As with the previous offers we expect interest from institutional investors and wealth managers seeking to benefit from the portfolio diversification benefits provided by hedge fund returns.'
The RBC Hedge 250 Index is designed to be a representative, investible benchmark of the performance of the hedge fund asset class, with diversification across 259 hedge funds and nine distinct strategies, asset-weighted by strategy and approximately equally-weighted initially by hedge fund. The assets under management of the hedge funds in the index totalled USD269bn at the end of August, according to RBC Capital Markets.
The index is currently dominated by long/short equity strategies, with 37.4 per cent of total assets and 92 funds, followed by multi-strategy with 15.8 per cent of assets and 40 funds, credit with 12.5 per cent and 32 funds, merger and special situations with 10.6 per cent and 27 funds, macro with 8.6 per cent and 23 funds, managed futures with 5.7 per cent and 15 funds, fixed income arbitrage with 4.6 per cent and 14 funds, convertible arbitrage with 2.2 per cent and nine funds, and equity market neutral with 2.6 per cent and seven funds.