BoE International, the South African investment banking group, has introduced a fund of hedge funds that will initially invest in 12 hedge funds.
The BoE International market neutral fund is an open-ended investment company based in the Isle of Man. It aims to provide high net worth investors with high returns and low volatility by investing in funds that use a long and short hedging strategy.
Long and short selling is the most popular hedging technique. The fund manager buys stocks that look likely to increase in value when the stockmarket is on the up and can also sell short. This is where fund managers borrows shares from a broker for a fee and sells them with the intention of buying them back when the price falls.
Although the fund invests in hedge funds that use the same strategy, diversity is achieved through a blend of fund managers who have their individual management styles. Each fund may also focus on different sectors and regions. No single fund will take up more than 20 per cent of the overall portfolio, which means it is less risky than investing in a single hedge fund.
However, the flip side of lower risk is that the experienced high net worth individuals that are attracted to hedge funds would get higher returns from riskier investments in a single hedge fund.