Optima Fund Management, a fund of hedge funds and hedge fund allocation firm, is making its Optima STAR Long Strategy available in Europe.
STAR Long Strategy offers investors the opportunity to benefit from the highest-conviction stock positions held by Optima’s pick of leading American hedge funds without facing the high-charges and low liquidity that direct participation in such funds inevitably involves.
Focusing on managers working with US equities and American Depositary Receipts (ADRs), Optima has matched its own long experience in investing with the top managers with a lateral approach to the interpretation of US investment regulations, specifically those rules which require equity managers publicly to file reports of their principal equity holdings on a quarterly basis. This regulatory disclosure shines a light on a manager’s portfolio and in so doing, has created the opportunity for the development of the STAR Long Strategy.
“What is the Holy Grail for hedge fund investors?” says Dixon Boardman (pictured), Founder and Managing Partner of Optima Fund Management. “The goal is to identify managers who first have demonstrated a real edge in managing money, and second, have generated superior performance. But investors have chafed increasingly at the high fees, lack of liquidity, limited transparency, prohibitively high minimum investments, and downright user unfriendliness of hedge funds.
“With the launch of the STAR Long Strategy, the Optima Group has addressed these issues. STAR Long Strategy’s portfolio consists of what Optima views as the five highest conviction holdings of ten hand-picked top-performing hedge fund managers. But – and this is a big but – STAR Long Strategy does so while offering daily liquidity and sensible flat management fees.
“In simple terms, the STAR Long Strategy combines what we feel are two powerful investment principles. First that long-term success is most likely to come from allocating to the “best and brightest” money managers you can find, and second in our experience these top managers tend to outperform when they concentrate on their highest conviction stock ideas. As Warren Buffet once put it, “Diversification may preserve wealth, but concentration builds wealth.”
The STAR Long Strategy portfolio is constructed by following a three-step process. First, Optima screens it universe of hedge funds to identify what it views as the 10 most attractive, based on quantitative measures of performance, volatility of returns, correlation and so on, as well as qualitative assessments of each manager. Next Optima selects the top five positions by market value from each of the identified managers, using public filings. Finally, risk guidelines are applied to manage liquidity and sector concentrations.
The result is a portfolio of 50 “highest conviction” equities from hedge fund managers who Optima believes to be the 10 “best in class” hedge fund managers. The 10 managers follow different but complementary investment approaches including value, opportunistic, growth and event-driven – the balance between these approaches may vary from time to time.
The STAR Long Strategy was launched in the second quarter of 2016 so European investors, to whom the Strategy is being offered, have the benefit of more than 12 months’ trading experience. In the first eight months of 2017, STAR gained 21.85 per cent by comparison to the S&P 500’s advance of 11.93 per cent.
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