Hedge fund manager admits defeat on leveraging
The managers of the HFA Accelerator Plus fund have admitted the fund’s leveraging strategy has come back to haunt it and it will be exiting its leveraged positions as a result.
The chief executive of Accelerator Plus, Robert White, this morning informed the Australian Securities Exchange that the fund would be redeeming all its leverage notes and swaps as part of an asset realisation program it hopes will protect shareholder value.
The statement said the HFA Accelerator Plus model is predicated on leveraging the fund’s capital three times as an investment in the Lighthouse Diversified Fund, a diversified offshore fund of hedge funds. The group said the model was designed to provide “superior returns” in a wide variety of hedge funds with different investment strategies.
While this model worked well during the boom, it has unsurprisingly underperformed over the past 12 months.
The group admitted “the same leverage that magnified [the fund’s] positive returns now magnifies its negative returns”.
The managers of the Accelerator Plus fund will now work with HFA Asset Management to develop a timetable for the capital return resulting from the process. The first proceeds from the redemption of the leveraged instruments will be used as part of a share buy-back approved by the fund’s investors in October.
“The overall process to redeem the leverage instruments is complex, and it will be some time before the board will know the amounts that will be received or the timing of the receipts,” White said.
White said when this information becomes available the group would make a further statement about its future strategy.
The fund’s arrangements with counterparties require it to maintain a four times gross exposure to the underlying fund, this morning’s statement said. In periods of market deterioration and volatility, the leverage ratio automatically increases and the counterparties deleverage the fund’s exposure to return the gross exposure four times.
AUTHOR
Mike Taylor
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