Investec Asset Management has established the absolute return fund series II, a fund of hedge funds that invests in a range of hedge funds that use different strategies.
Investec has been trying to get into the hedge fund of funds market since 2001, but did not have the experience to do this. The solution was to outsource the management of this fund to a specialist hedge fund of funds manager, Olympia Capital Management. Investec already outsources some of its investment funds to BlackRock, so this is not a new concept for the company. Outsourcing to Olympia may also provide the fund with access to hedge funds that are closed to new investors.
The fund aims to produce returns of between 5 per cent and 8 per cnet above the US Libor rate in all economic conditions. It will invest in hedge funds that use global macro, fixed income arbitrage, convertible arbitrage, statistical arbitrage, long and short equity, event driven and relative value strategies. Each strategy will suit different economic conditions and a wide selection of strategies should ensure the fund performs well in all conditions.
The fund of funds approach is designed to lower the investment risks through diversification, but another advantage is that IFAs may not have the knowledge and experience to wade through a universe of 6,000 individual hedge funds to select those that are right for their clients.
The fund of funds approach takes this burden away from the adviser and places it with an experienced fund of funds manager who will have a better understanding of the hedge fund industry.