Liberty Ermitage today announced the launch of the Strategic Partners Fund, a fund of funds mainly investing in European based, early-stage hedge fund managers. The fund will be seeded with $50 million of proprietary capital and will generate returns from both the underlying hedge fund strategies and equity (or similar economic participation) in the underlying fund management partnerships.
“Liberty Ermitage is uniquely positioned to manage this vehicle as we have been seeding and sponsoring hedge fund managers since 1984,”says Ian Cadby, Group Executive Director in charge of Strategic Investments. “This product goes a long way to addressing the three key concerns that all institutional investors have – in effect the Strategic Partners Fund offers enhanced transparency, multi-faceted returns and guaranteed capacity”.
The fund will partner with hedge funds across a range of both directional and spread based strategies. Liberty Ermitage will offer distribution, business and technical advice to their hedge fund partnerships and in return will have representation on the respective hedge fund boards.
“It is typical for Fund of Funds to insist on transparency at hedge fund level, but how many offer transparency at the business level?” asks Cadby “We designed this product to offer our institutional investors the maximum level of transparency possible. As a professional hedge fund investor, Liberty Ermitage will be partnering at the business and fund levels, without conflicting with our managers’ day to day responsibilities”.
Investors in the Strategic Partners Fund will be invited to join a monthly forum to discuss all aspects of the underlying hedge fund activity with each of the managers. “The additional advantage of this product is the return on the ‘free equity’ received from the fund management companies,” adds Jonathan Wauton, Director and co-architect of the product. ” Investors will in effect ‘double dip’ into future revenue streams, as they will receive returns from the underlying hedge fund strategies and share in the dividends received from economic participation in the hedge fund management partnerships. Additionally, Liberty Ermitage will also negotiate capacity levels with the manager”.
Ron Mitchell, CEO of the Liberty Ermitage Group, argues that now is the time to step up investments into early stage managers, as the current environment has led to attractive seeding opportunities. Liberty Ermitage has spent over a year carefully structuring each aspect of this product to ensure that all the issues are covered, from both managers’ and investors’ perspectives. “This product is one of the most exciting fund of fund products seen in the industry,” says Mitchell. “In addition to our Euro-centric expertise, perhaps the most important edge, which Liberty Ermitage has, is the substantial depth and experience of our investment team. Liberty Ermitage is one of Europe’s longest established participants in the hedge fund seeding industry and we have a dedicated team devoted to this activity. Several of Liberty Ermitage’s investment experts are former derivative traders and hedge fund managers – they really understand the technical and risk management aspects of this business. The Group has also built a strong reputation for qualitative and macro analysis. As such, Liberty Ermitage can provide more than just seed capital. We can provide strategic assistance to hedge fund managers, across a range of disciplines, including the choosing of risk management systems, business consultancy and even helping the manager find additional trading and research capability. We firmly believe our formula offers the optimal solution for both parties. We are so convinced this product is both timely and an efficient return optimizer that we are committing a minimum of $50 million of our proprietary capital to the fund”.
Liberty Ermitagesays the fund has already attracted significant interest from institutional investors, ranging from US pension funds and foundations to US and European investment banks. “Many US hedge fund investors have been immediately attracted to the Strategic Partners Fund by its invaluable Euro-centric hedge fund exposure and the enhanced information flows,” saysthe fund manager. “In Europe, financial institutions and pension funds have quickly recognised that this vehicle represents a unique and valuable entry point to the hedge fund industry – giving the opportunity to really understand the technicalities of both hedge fund strategies and the dynamics of a hedge fund management business. We anticipate the initial offer period to run from 1st December 2002 to 31st March 2003, with the first subscription period set for 10th February. Given the current levels of interest it is likely that the first subscription period will close early. “
The Strategic Partners Fund will charge a 1.5% annual management fee and an incentive fee based on 25% of the equity or other economic participation. Minimum subscription has been set at $10 million although the manager has discretion to scale the entry levels.