Platinum Capital Management has established a hedge fund that will invest in UK, US and European government securities using a long/short strategy.
The Platinum premier fund aims to produce absolute returns of between 10 and 18 per cent, with low volatility, in all market conditions. It will have what Platinum calls a short-term interest rate arbitrage overlay to hedge and enhance returns. In practice this refers to a form of futures trading. The fund's traders will be looking for any gaps in price between government securities and their corresponding interest rate securities on a daily basis.
Sometimes the gap - or spread - widens and the traders will buy these securities in the expectation that they will narrow. If the spread narrows, the securities will be sold.
The fund will be managed for Platinum by City Fund Management, a company which has an eight-year relationship with Platinum. Platinum has invested both its own money and clients' money with City Fund Management for almost five years.
Platinum Capital Management managing director Craig Reeves explains that the City Fund Management team has been in place for 10 years, while two of the members have been working together since 1969. The team personally invest in their own funds, which Platinum likes as this aligns their interests with those of the investors.
Another important factor is that the team does not use leverage. This fits with Platinum's house view that leverage can be too risky. Instead of leverage, City Fund Management will aim to produce the target returns using high volume trading, possibly around 10 trades a day.
Although this fund is designed for institutional investors, it is also available to high-net-worth individuals who can meet the £60,000 minimum investment. With its low volatility and low correlation to equity markets, the fund could be useful for wealthy investors who want to preserve their wealth in all markets.
However, wealthy individuals may prefer to gain hedge fund exposure through a multi-manager, multi-asset class vehicle such as those offered by Man Investments.