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Henderson gets fixed on hedge funds



Type: Hedge fund

Aim: Growth by investing in fixed income securities

Minimum investment: Lump sum $100,000

Place of Registration: Cayman Islands

Investment spilt: 100% in fixed interest securities

Charges: Annual 1.5%

Commission: Initial up to 3%

Tel: 0800 881144

The panel: Nicholas Howe, portfolio manager, Accrue Investment Management, Martin Dilke-Wing, Director, Morgans Independent Advisers,
Peter Pickup, Principal, Peter Pickup IFA,
Godfrey Bloom, Investment director, TBO Corporate Benefit Consultants.

Suitability to market 5.0
Investment strategy 7.0
Past performance 8.0
Company&#39s reputation 8.0
Charges 6.0
Commission 6.0
Product literature 6.0

The Henderson Global Investors&#39 global fixed income absolute return fund is a hedge fund that aims for capital growth by looking to exploit inefficiencies in global interest rate and credit markets.

Considering how the fund fits into the market Howe says: “The fund is denominated in either euro or dollar and invests in various fixed-interest strategies. This will allow it to fit well into the current market. The fund isn&#39t unique but Henderson seems to be building upon the growing hedge fund expertise to attract new money.” Bloom says: “It is a relatively specialised market for consultants and actuaries involved in asset liability marketing.”

Dilke-Wing says: “The fund is a highly specialised fixed-income absolute return hedge fund and as such is suitable only for high-net-worth clients, trust funds or corporate entities seeking exposure to this particular asset class, primarily as part of a highly developed portfolio.” Pickup suggests high-net-worth retired clients looking to supplement income, but points out the product is more complicated than most investors would understand.

Identifying the type of client for whom the fund would be suitable Pickup says: “Highly sophisticated clients, probably as part of a larger portfolio. Clients who are aware of financial institutions and general money markets.” Dilke-Wing says: “The client would have to be aware of the potential risks and rewards of dealing with large sums of money in a specialised investment environment. By definition, these will be high-net-worth clients who are experienced in this area. While the fund exploits statistical anomalies and could be perceived as lower risk than many hedge funds, there are obvious barriers that make it unsuitable for the majority of retail investors.”

Howe says: “The fund is suitable for experienced high-net-worth clients who fully understand the risks involved. The currency and minimum subscription of $100,000 highlights this. It would also be suitable for discretionary managers who could allocate the fund between a number of smaller clients. This means that the minimum subscription is not necessarily an issue.” Bloom says: “Segregated fund clients who are looking for slightly out of the box fixed-interest investment in euros and dollars.”

Assessing the fund&#39s marketing potential, the panel agree the fund is not generally marketable to retail investors and it should only be used for high-net-worth clients. Howe adds that the fund could be marketed to clients with smaller amounts via the discretionary route. He also feels it could be marketed to clients with larger amounts, both onshore and offshore as a way to make money in difficult market conditions.

Looking at the main useful features and strong points of the fund Dilke-Wing says: “The fund appears to have an impressive array of management expertise, analytical processes, research and back-tested success. It is also aiming for very high absolute returns that will make it attractive to individuals with the necessary amount of capital to commit to this type of strategy.” Pickup feels its conservative nature is a positive feature. Bloom thinks there are some interesting arbitrage opportunities in the markets that this fund could exploit. Howe says: “It uses the ideas of all the Henderson fixed-interest team and there is a high level of risk management. It aims to provide a net return of 10 per cent above the Libor rate, with a volatility of 5 per cent. It is diversified through strategy and assets.”

Analysing the investment strategy Howe says: “The investment style seems valid, with a high level of net return as the objective, but with both diversification and further risk control overlay. It is bringing together the ideas of 50 managers at Henderson. The fund is seeking to take advantage of market anomalies, which will be in short and long positions, leading to an active management style. But Henderson has the infrastructure in place to cope with this.” Bloom believes it is sound and likes the disciplined approach.

Pickup says it is not a buy and hold strategy and thinks it is a very complicated product. Dilke-Wing says: “This is for serious investment professionals and even the well-qualified IFA will find it difficult, if not impossible, to accurately appraise the investment strategies. It aims to derive its value by arcane trading strategies that are far too complex for most IFAs to hold an informed opinion about.”

Highlighting the fund&#39s drawbacks Dilke-Wing says: “It has an entry level of $100,000 and the investment strategy is incomprehensible to anybody except a fixed-income specialist. It deals in a relatively narrow area, it cannot be widely marketed as it is a hedge fund and if it doesn&#39t work, how will the IFA explain it to clients?” Howe cites the high minimum subscription, monthly dealing and the complex strategies that only a small percentage of clients will understand. Bloom feels it is a very limited market and Pickup points out that understanding how it works can be daunting.

Evaluating Henderson&#39s reputation, Pickup thinks it is good. Howe says: “Henderson has a very good reputation for managing money on the private client side of its business and a growing reputation for the management of hedge funds.” Bloom regards it as strong in this field, while Dilke-Wing says it has a reasonable reputation, but feels unable to comment on its reputation as a hedge fund manager.

Moving on to past performance, Pickup and Bloom think it is good. Howe says: “Henderson has suffered in recent years as markets have been unkind. However, the performance of the Henderson range has remained consistent and continues to outperform peer group and actual markets over the majority of time periods.” Dilke-Wing says: “We are talking more about belief in the managers&#39 ability to deliver the returns they say they can. I would have to be sceptical about a fixed-interest fund that aims for 10 per cent above Libor. But I could be wrong.”

Highlighting potential competitors, Dilke-Wing says his clients would look at funds of hedge funds with lower entry levels across a range of market neutral strategies. He suggests Man-Glenwood or Matrix Tremont as examples of rival funds. Howe goes for Man Group and Jupiter.

Assessing the charges, the majority of the panel find them typical for a hedge fund. However, Bloom regards the charges as expensive for a fixed-interest fund, no matter how clever it is.

Looking at the commission Henderson offers, the majority of the panel see it is the norm, but Howe sees it as slightly less than other hedge funds.

Looking at the literature, Pickup imagines that it would be hard for the layman to understand, while Bloom complains it is high in jargon and uses American terms. Howe says: “As with all fund launch prospectuses, the information provided is regulatory and tends to provide a lot of unnecessary information. The presentation and flyer produced by Henderson are clear and not over complicated. They outline the objectives and detail the fund very well.” Dilke Wing points out that because of the high barriers to entry, there is no need for markting literature. He thinks all the information investors would need is contained within the literature.


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