Absolute Fund Management has designed the absolute fund, a fund of hedge funds aiming for growth while trying to preserve capital.
AFM is a new company founded by Charles Hovenden and Christopher Aldous. Hovenden is a former associate director of Rothschild Asset Management and has been involved in hedge funds since 1993. Aldous was a managing director of US investment bank Robertson Stephens and has worked as an executive director of UBS.
The fund will deliver returns independent of stockmarket movements. It will invest in a range of hedge funds that use different types of hedging strategies, including long and short equity, merger and reorganisation and convertible abitrage strategies. Going long means the fund manager buys stocks they think will rise in price. Selling short is where a manager borrows stocks when their value is low, sells them when the price rises and buys them back when prices fall. Only hedge fund managers are allowed to do this.
Convertible arbitrage strategies involve buying a company's convertible bonds and selling the underlying investments short to exploit the difference in price between the two assets. Merger and reorganisation strategies means buying shares in companies that are about to be taken over before their share prices go up.
Unlike some funds, this will steer clear of the riskier global macro strategy. Alongside the Fof approach, this makes the absolute fund a lower-risk product in a high-risk investment field.