Premier Fund Managers has established a capital-protected product linked to a fund of hedge funds during a five-year term.
The Premier Diva Growth Plan provides 70 per cent of any growth in the Barclays Global Investors Diversified Alpha Fund 1 during the term. Investors will also get their original capital back regardless of the performance of the underlying investments.
The underlying fund is an institutional fund which aims to deliver returns of between 4 per cent and 8 per cent a year above its cash benchmark. It has low correlation to equity and bond markets and has greater potential to make money in all economic conditions. As a fund of hedge funds, it diversifies across fund manager, geographic sector and hedge fund strategy. Examples of styles used include equity hedge, relative value statistical arbitrage and event-driven distressed strategies.
Evaluation Associates Capital Markets, a US advisory firm specialising in multi-manager investments for institutional and high net worth clients works with BGI in screening fund managers for inclusion into the portfolio. They are assessed in terms of how they run their funds, performance and risk management. Once selected, managers are constantly assessed.
The £25,000 minimum investment into the Diva product is lower than the minimum for many hedge funds so it opens up this area of investing to a wider audience who are unable to invest directly in hedge funds due to the current regulations. Some of the hedge funds the underlying BGI fund invests in may also be closed to new investors.
However, as hedge funds are designed for absolute returns, it is debatable whether 100 per cent capital-protection is needed. Consequently investors may be losing out on 30 per cent growth in the underlying fund to pay for a capital protected wrapper they will not need.