Hedge fund manager Absolute Alpha is to launch a new capital guaranteed fund this month to complement its flagship Alpha Strategic Fund — motivated by demand from financial planning dealer groups for new product.
The new Advantage Fund Series has three investment options: the Advantage Emerging Markets Fund; the Advantage Hedge Fund of Funds; and the Advantage Commodity and Energy-linked Assets Fund.
Barclays Bank is guaranteeing the partial principal in the Advantage Fund Series, which will be targeting investor returns of between 15 and 20 per cent per annum.
Absolute Alpha chief executive Shawn Richard said “a number of dealer groups had asked us to develop a structured product for them, based on the fact we have not been seeing the negative returns many hedge funds have been getting.
“They want the upside of what we’re offering in the market, such as emerging markets or hedge funds or commodity or energy linked assets, but without the risk of anything going wrong.
“With the product guarantee, however, they’ll get access to the upside and there won’t be much down side, and they’ll have the tax benefits that these structural products provide.”
A unique feature of the fund, according to Richard, is that the “capital protection is set at 80 per cent of the principal and not at 100 per cent, and it’s pegged at the highest level ever achieved by the fund”.
“So, as the fund performs over time the 80 per cent also rises, and you lock in a protection of principal and eventually lock in a protection of profit.”
Richard said another key difference to traditional capital guaranteed hedge funds is that the Advantage Series guarantee “applies from day one for investors”.
“We’ve changed the product structure so we can start supplying the guarantee from day one, so an investor knows he can get out at the guaranteed level at any particular time.”
By contrast, he said a “typical capital guarantee will only have that guarantee supplied to investors at a maturity date which is eight years or potentially more from when the investor invests”.
Also, the product itself is open-ended, he said, “meaning investors can get in and out of this product at anytime, whereas generally these funds are driven towards a June 30 (end of financial year) structure”.
