BlackSquare Capital plans to follow its new diversified absolute return fund of funds with a third multi-manager absolute return fund to sit at the higher end of the risk and reward spectrum.
The firm intends to have multi-manager absolute return funds spanning low, medium and higher-risk profiles but has not set a date to launch the higher-risk option. The new diversified absolute return fund provides a medium-risk option, targeting annualised volatility up to 8 per cent to generate a higher return than the one-year-old absolute return fund, the lower-risk option.
BlackSquare says the new fund follows the same investment process as its first absolute return fund to deliver positive returns in all market conditions that are uncorrelated to equities and bonds. It will share the same focus on due diligence and risk management, investing only with managers who reduce risk in their portfolios rather than gambling in times of market stress. But it differs in terms of its higher return and volatility targets and in its wider investment remit. Unlike the first fund, which is restricted to Ucits III funds, it can hold up to 30 per cent in funds that are not Ucits III-compliant.
Individual holdings may have volatility similar to equity markets but BlackSquare says holding them through a fund of funds will reduce the overall volatility and provide a smoother rate of return. There will also be no overlapping holdings in the portfolios as the firm believes the same funds will not be suitable for both risk profiles
The fund will have daily liquidity and will only invest in liquid assets, of which at least 75 per cent will have daily liquidity and the remainder will have weekly liquidity.
Blacksquare Capital partner Brian Raven says: “We try to have only two or three investments with weekly liquidity in a portfolio, trading on different days of the week. In the worst case, if we had to liquidate the fund, it would take us a day to liquidate most of the portfolio and less than a week to complete.”