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AFM launches UK fund-of-funds product
John Wilkinson
Australian Funds Marketing is to launch UK hedge fund manager Fortune Group’s fund-of-funds product in Australia.
The Fortune Market Wizard Fund invests in a portfolio of between 35 and 40 funds from around the globe, which are offered through a managed account structure.
Fortune investment director Richard Tarvin told Money Management
the managed account structure was going to be the future for investing in fund-of-funds products.
“The problems of investing in hedge funds is when they implode, the investors find out too late and suffer from redemption lags,” he said.
“Therefore, the funds lack transparency and liquidity, and that is why institutions and investors shun hedge funds.”
Tarvin said the managed account structure dealt with these issues because the investor has control of the account in which the funds are held.
The investor also grants the fund-of-funds manager limited power of attorney for the execution of trades and the movement of money.
“A managed account structure has 100 per cent transparency, as you have aggregated the risk across the product investments which the investor controls cash movement [in],” Tarvin said.
“This also means the investor has better liquidity and it insulates the account from fraud, as the fund manager cannot siphon off money from one product to another that might be in trouble.”
He said the account could also be structured to minimise the amount of cash being held, as many hedge fund managers often keep large amounts of cash waiting for investment opportunities or to cover derivatives trades.
“This means investors could wait three to four weeks before they can redeem their money, by which time the hedge fund could be in trouble,” Tarvin said.
The Market Wizard Fund offers daily pricing and monitoring as part of the managed account structure it uses.
Its 2006 return was 10.79 per cent, and US$100 invested since the fund’s inception in November, 2001, would now be worth US$150.
The Wizard fund will initially be offered wholesale, but a retail offering is in the cards, said Australian Funds Marketing director Paul Pickering.
Fortune was acquired last year by British merchant bank Close Brother and operates as its alternative investments division. The manager currently has more than $US7 billion of funds under management and in excess of 800 institutional clients, including Rothschild, Julius Bar, Watson Wyatt and Lazard.
31 January 2007
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