AXA Investment Managers, the Eu270 billion funds management arm of the French insurer, is going on the road with its first Asian hedge fund this week. The Asian Absolute Fund has been trading for seven months on seed capital and one European fund of funds is now being offered to institutional and private client investors in Asia and abroad.
Nick Thompson, director of structured and alternative investments in Hong Kong, says the fund will be sold to fund of fund investors, endowments and family offices with an initial target of $100 million and an ultimate target of $250 million. Prospective investors will be given performance data on the fund which has been trading since October 10 last year with $15 million in seed capital provided by two of AXA IM's European clients.
While Thompson would not reveal the exact details of this performance he said the returns are more in line with a fund of hedge funds despite it being a single strategy fund. "The fund is being run cautiously and conservatively but it has a low correlation of just 0.2 to HFR's fund of funds index, making it a good diversification play for investors." He says the managers hope to achieve a return of 1-2% per month and about 15% annually.
Asian Absolute has a minimum investment of $5 million, fees of 1.5% for management and 20% for performance, and a leverage allowance of 200% - though it is likely to run with a gross exposure of 75% to 150%. It will trade in Asian and Japanese equities with a net long bias. Morgan Stanley is providing prime brokerage services.
The fund is being managed by a team of three: Andrew Alexander, Lawrence Yip and Cecilia Mak. Alexander has a six-year history with hedge funds working for George Long at Long Investments, Asia Debt Management and the Pacific Group. Prior to that he was a long-only manager with BZW Investments and director of asset consulting at Towers Perrin. Mak also comes from a hedge fund background with several years at the Pacific Group, while Yip brings long-only experience from ARN Investment Partners in Singapore and LGT Asset Management in Hong Kong.
Visiting the region to kickoff the roadshow, Robert Kyprianou, co-head of securities investment management at AXA IM, said the fund is the latest in a string of alternative initiatives launched by AXA IM. In Europe the firm operates a Eu1 billion fund of hedge funds operation, a global CTA fund, a statistical arbitrage fund and a convertible arbitrage fund.
Kyprianou says the popularity of hedge funds will continue to increase as they become mainstream investment products. "The general acceptance of hedge funds as a valuable investment will happen because pension funds need to deliver on the asset side of the asset/liability equation and match their liabilities," he says. "There is also a level of expectation among investors now - they want higher returns. Hedge funds can provide them with these returns while offering low correlation to their traditional holdings."
He predicts that hedge funds will no longer be the realm of boutique managers as more and more institutional houses launch funds. He says star managers will be attracted to big institutions because of the infrastructure that they can provide including: access to seed capital, compliance management, credibility, marketing and distribution, research and IT resources, and access to prime brokers.
"The only difficulty we have is holding on to managers. Boutique managers keep every cent of the performance fee, while institutional managers have to share it with the company. We have to give them the right incentives to encourage them to stay."
While hedge funds won't provide the stellar returns of the last decade, they will certainly outperform equities, says Kyprianou. "Equity markets will suffer headwinds for the foreseeable future for structural reasons, not cyclical ones. Equity markets have been deregulated and liberalized to such an extent that we have now reached a point where productivity is high and information flow is strong," he says, explaining that the returns that arise from inefficiencies in the market are no longer available to investors.