Fund of hedge fund manager 3A has attributed the strong performance of Altin, its London-listed fund of hedge funds, to the generalist structure of its management team and incentives in place to reward them.
Altin marked its tenth anniversary by achieving a return of 20.24 per cent during 2006, outperforming the Hedge Fund Research Fund of Funds Composite index by 9.91 per cent.
3A says part of the reason for Altin’s performance is that it is managed by a team of analysts. Instead of employing a fund manager and a specialist analyst for each sector, every member of the investment team must cover all strategies.
It says this approach better equips all members of the team to challenge ideas, so only the best hedge funds make it on to its approved fund list. It also means there is less disruption if a member decides to leaves.
As well as a bonus system to reward portfolio managers who consistently identify good hedge funds, 3A applies a staggered performance fee to Altin.
This encourages portfolio managers to aim for returns within a range of 12-20 per cent, as 3A believes an incentive to produce returns above this range could encourage the portfolio to become too aggressive and risky.
Head of portfolio management and research Jose Galeano says: “Something that is key for us is our generalist strategy which allows us to debate ideas. It is not a star system, it is more about team spirit where everyone can challenge and debate ideas.
“We remunerate managers to find the best hedge funds because the alignment of interest between the portfolio managers and clients is important. Some funds of hedge funds become so big, they forget this.”