New Star Asset Management, a $15 billion London-based asset manager, will launch an actively managed portfolio of its own hedge funds in June. The firm currently manages over $500 million in hedge fund assets.
The New Star Managed Hedge Fund will target returns of 10%-15%, aiming for equity-like returns with bond-like levels of risk.
"The decision to launch this product was a response to the strong demand we've had from investors for exposure to the full range of our top performing hedge funds through a single product," says Charlie Tritton, New Star's Head of alternative investments.
Tritton notes that an equally weighted basket of New Stars hedge funds over the last two years has returned an annualized 9.3%, outperforming the HFRI fund of funds index by 2% and the MSCI world index by over 4%.
The managed fund will have a capacity of $250 million, and Tritton expects the fund to launch at a substantial size. In Asia he expects to see most interest from small institutions, particularly in Japan, and high net worth investors.
Unlike traditional fund of hedge funds, New Star will not charge a double layer of performance fees on its portfolio of hedge funds."Management fees and performance fees will be paid on the underlying funds only. Institutions will encounter no other fees, although retail investors may be required to pay an initial fee of up to 5.25%," says Tritton.
He emphasises that investors will have full transparency into all the fund's positions and will enjoy the benefit of strong risk management on both the fund's portfolio and on an individual fund basis.
Tritton, together with Gregor Logan, New Star's deputy CIO, will actively manage the allocation between the seven funds in the portfolio. Allocations will be reviewed on a fortnightly basis.
The fund will initially allocate most assets (26%) to its UK long/short fund managed by Allan Miller."This fund has produced an annualized return of 23% per annum since its 1997 inception. The fund is currently closed, so investors will only be able to get access to it though the New Star managed hedge fund," says Tritton.
The initial allocation will also see a heavy weighting (20%) towards the group's Japan hedge fund: "There are huge corporate restructurings taking place in Japan which are offering attractive opportunities for managers on the long and short side," Tritton explains.
New Star's Asian Renaissance Fund will initially receive only a 6% allocation in the portfolio due to concerns about a setback in the China story."It's difficult to short in Asia so exposure to this fund needs to be timed."
The managed fund also includes an 18% exposure to the New Star Convertible Opportunities Fund, the only non-equity long/short strategy included in the portfolio.