Zurich-based Finvest Asset Management has received a mandate to allocate around USD300m to the fund of hedge funds sector as part of a low-risk strategy to capitalise on the turbulence in global financial markets market.
Allocations will be made to funds that have a track record of at least three years, have an attractive Sharpe ratio, and are targeting annual returns of between 10 and 15 per cent. Funds of funds that may have incurred negative returns will not be excluded from the selection process.
Although many investors are running for cover and fund redemptions are occurring at an unprecedented rate, Finvest believes that level-headed investors are taking a long-term view, appreciating that while caution is not out of place, the markets will ultimately achieve a platform of stability.
'The decision to allocate to a hedge fund goes against the current trend,' says Finvest portfolio strategist Mayer Greenwald. 'However, we see a tremendous amount of upside in the fund of funds space, providing that portfolio managers apply the appropriate risk management.' He argues that a good fund of funds can provide value in its ability to optimise allocations and achieve an appropriate risk/reward profile.
Historically, the double layer of fees incurred by funds of funds has deterred many investors, which have sought instead to create their own fund of funds through the application of allocations to a self-created fund of single strategy funds.
But Greenwald says: 'If a fund of hedge funds is going to conduct the necessary due diligence and optimise risk through allocation adjustments, paying a price for increasing risk-adjusted returns is justifiable.'
Finvest will not seek to raise further capital for the new fund of funds as the vehicle is being managed on behalf of a European institutional investor. Finvest manages several hedge funds that are open to non-US investors and, the firm says, have significantly outperformed their benchmarks so far this year.
Finvest Asset Management is an alternative asset management firm that aims to provide superior portfolio management and risk management solutions to non-US institutions and high net-worth clients.