Merill Lynch to offer hedge funds

Merrill Lynch Investment Management (MLIM) is on track to be the next manager to offer a hedge fund product, with the Merrill Lynch Strategic Absolute Return Fund due later this month.

The fund will be the first of any hedge fund product to be offered by MLIM in Australia, its creation driven by investor demand and the increasing need for diversification.

“Investors are recognising that equity returns in the next 10 years are likely to be lower than the past 10 years, but volatility remains high,” MLIM director and head of quantitative analytics Ken Liow says.

“They are aware of this situation and are looking at ways of fixing it, and the key driver is diversification.”

The Merrill Lynch Strategic Absolute Return Fund is a fund of hedge fund product that will be managed by a US-based team drawing on 25 to 30 hedge funds from primarily US fund managers.

Not disclosing any specific names, Liow says the managers cover a range of styles including equity, long/short and convertible arbitrage managers.

Institutional investors with a minimum of $5 million are the initial target for the fund of hedge fund but depending on its reception, Liow says a retail offering may be considered.

“The fund of fund product will be the way to get market exposure, then as it develops we could bring in stand-alone products,” he says.

The fund will be open for subscriptions on October 21. It will offer 10 to 15 per cent returns with bond-like volatility and follow a market neutral style.

“We believe a market neutral style offers clients a greater prospect and increased greater overall risk return trade off,” Liow says.