The fund aims to provide returns of between 7 per cent and 10 per cent a year with lower volatility than conventional long-only equity funds. The management of the fund has been outsourced to Glenwood, a Chicago-based provider of hedge fund of funds which was founded in 1987.
Glenwood’s investment team will select hedge fund managers that invest across a diverse range of equity markets, industry sectors, geographical regions and currencies. These will include both new and experienced hedge fund managers who can shift portfolios quickly in times of market change.
Fund of hedge funds may be used by sophisticated, high-net-worth clients to provide returns that are not correlated to other markets and to protect their capital in poor markets. However, 2004 was not a vintage year on the whole for hedge funds due to a combination of stagnant markets, interest rate rises in the UK and US, and the problem of too many hedge funds trying to exploit the same market inefficiencies.
The CSFB Tremont Hedge Fund Index was up by just 1.61 per cent in Dec 2004, although long and short equities performed better than the composite index and many other hedge fund strategies, having chalked up a 2.57 per cent increase. As one of the more popular strategies, this may explain why the Man Greenwood product is focused purely on this strategy.
However, although this fund has a multi-manager strategy, it does not have a multi-styles strategy. The risk for investors is that if the performance of long and short strategy starts to fall away, for example if economic conditions change – this fund may find it difficult to perform as successfully as the managers anticipate as it is restricted to one strategy.