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A pure Max blend


Max Closed End Share Securities Note

Type: Fund of hedge funds

Aim: Growth by investing in a portfolio of hedge funds

Minimum investment: Lump sum £50,000

Investment split: 100% in hedge funds

Place of registration: Bermuda

Closing date: September 26, 2006

Charges: Initial up to 4%, annual 1.75%, 5% performance fee

Commission: Initial up to 3%, renewal 0.5%

Tel: 020 7925 3377

The Max Closed End Share Securities Note invests in a portfolio of hedge funds, many of which are closed to new business or have very high minimum investment levels.

Introducing the product Michael Philips proprietor Michael Both says: “This is a fund of 20 speculative hedge funds, many of which are closed to new investors. Few hedge funds have clearly defined long-term strategies or readily available performance data, which means it is almost impossible to compare managers. Investors are almost inevitably parting with money in hope and on trust.”

Both feels Max’s more aggressive strategy complements the existing range. “The Max blend has a heavy weighting of long equity funds with a significant minority of fixed interest and a smattering of absolute return funds. There appears to be a preponderance of high-risk strategies including, for example, distressed debt and unlisted securities rather than arbitrage or market neutral ones. While this may ultimately produce higher returns, it could certainly get there in a very volatile fashion,” says Both.

The closed-end structure which enables all profits to be classed as capital rather than income gains is an attractive feature for individuals in Both’s view, although less important for pension funds.

Turning to the potential drawbacks of the fund Both says: “Avid students of funds advertising simulated past performance should surely know by now that Sod’s Law always holds good and “this time will be different”. Matrix’s simulated 2005 results would be nice to get this year or any future year. But advisers would do well to get clients to confirm in writing that they understand that past performance is no guide,” says Both.

According to Both, anyone who invested in the open-ended Max product at launch in April was down 0.08 per cent to August 1 before charges, which he says is not bad compared to many other funds. “If the next few years turn out to be considerably more challenging than the 36 bullish months from March 2003, hedge funds may be the only structure with the theoretical capability to turn a consistent profit. However the well paid managers have yet to prove they can make money in flat and falling markets, not just rising ones.”

Both highlights the fact that this fund is unregulated and investors will not be covered by the Investors Compensation Fund. “As the prospectus points out, there is ample scope for conflict of interest and at times some a market valuation may be a little difficult to establish. Many of the underlying funds may be illiquid and most are unlisted,” he says.

The Close AllBlue and Close Man Guaranteed Hedge Fund II, managed by BlueCrest and Man respectively are two examples Both feels will compete with Matrix in this arena.

Both concludes: “With a minimum investment of £50,000 this is clearly aimed at the seriously wealthy, to which one might perhaps add only they should even be considering hedge funds with aggressive strategies like these. Although Max itself will not be highly geared, the holdings of the sub funds could be which will magnify the returns, both good and bad.”


Suitability to market: Good
Investment strategy: Average
Charges: Good
Adviser remuneration: Good

Overall 8/10


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