A new fund of ‘rising star’ hedge funds is being launched by Bank of Bermuda. All Points Absolute Return Funds – Opportunity Fund takes advantage of the early strong performance typical of new hedge fund managers. It seeks to provide the level of consistent absolute risk-adjusted returns demonstrated by alternative investments, while minimising the risks associated with investing in funds with short track records.
Hedge fund managers can often achieve early success because their smaller asset base offers greater flexibility, they have a more driving need to grow assets, their ideas are fresh and their focus on risk and return are still aligned with investors, usually because a significant portion of their own liquid net worth is tied up in the fund.
“The Opportunity Fund is an investment vehicle for sophisticated international investors looking to complement their existing portfolio or increase exposure to the alternative asset class,” explained Director of Alternative Investments, Adrian Fairbourn. “While investing in start up hedge funds may be seen as potentially risky, it is while they are young that quality hedge funds often perform the best. We are offering a way of capturing that early performance while seeking to minimise the risk to our investors. We use our specialised knowledge of the industry to seek out new quality hedge funds, and commit a small allocation to each in order to reduce risk through diversification.”
Bank of Bermuda already offers the All Points Fund of Funds Alternative Class, a highly successful fund of hedge funds vehicle that has produced a return of 26.58% since inception (29 October 1999 to 31 December 2001). It is the small group of managers with track records less than two years in the Alternative Class that have often performed the best. Utilising the Bank’s deep understanding of the alternative investments industry, the Opportunity Fund will aim to capitalise on this performance, but reduce the risk through a wider diversification of short-track-record managers.
“Obviously a shorter track record means we have to rely on criteria other than proven performance over time, when selecting our rising stars.” explained Mr Fairbourn. “Our profound understanding of the industry gives us great insight into what makes hedge funds thrive and our research on each potential fund is as in depth as it is for funds that have the additional weight of an extended period of strong performance. As investors will expect, hot on the heels of a start up hedge fund manager’s selection comes constant and close monitoring of the fund’s subsequent performance.”
A portfolio of around 12 to 15 managers will be maintained in the All Points Absolute Return Funds- Opportunity Fund to balance diversification with the needs of constantly analysing and monitoring each hedge fund within the portfolio. The fund requires a low minimum investment of only $10,000 and will deal monthly with no lock up period.
The Opportunity Fund is the first class created under the Absolute Return Fund structure, a structure that gives Bank of Bermuda the ability to act on client and market demand in the hedge fund industry by identifying new opportunities and by growing the class offerings over time as other areas of interest are identified.