If volatility is the market neutral fund’s friend, then the smooth upward trajectory of most equity indices during 2004 presented a hostile environment.
Yet it wasn’t enough to stop Swiss hedge fund manager, Gottex, from taking out Money Management’s Alternative Fund Manager of the Year award.
According to senior alternative strategies analyst at Assirt, Greg Hogan, Gottex was a clear winner because of its strong risk-adjusted returns, simple investment philosophy, extensive global resources and unselfish attention to capacity constraints in its funds.
This year, only multi-manager fund of hedge funds were included in this category of the awards because of their greater relevance to retail investors and financial planners.
Gottex, which is distributed in Australia through Select Asset Management, saw its flagship Market Neutral Fund return a net 9.5 per cent in local currency terms over calendar 2004.
“Unlike most other fund of hedge funds, Gottex has stuck to the sub-strategy it knows best, which is market neutral,” Hogan says.
It was testament to the skill and resourcing of Gottex’s people, he says, that the Market Neutral Fund was able to expand from having 25 underlying managers in 2000 to the 76 it houses today without unduly disrupting performance. The fund has returned 8.77 per cent since its June 1999 inception.
Gottex’s Enhanced Market Neutral Fund, which offers exactly the same strategy levered for double the exposure, returned a net 12.5 per cent in local currency terms over 2004.
Hogan pointed out that this bettered many fund of hedge funds with an overall long bias, which had a built-in advantage in the booming markets of last year.
Perth-based senior managing director of Gottex, Clayton Freind, says the strong recent returns were achieved by backing out of strategies which had become overcrowded (such as convertible arbitrage) and braving relatively untested waters like short-term trade finance and US life policy trading.
Unlike most fund of hedge funds, Gottex also took top down views which has seen the Market Neutral Fund build a neutral position on credit as it observed credit spreads widening over the past year.
Hogan also admired Gottex for closing off new investor access to the Market Neutral Fund when it reached US$3 billion, although this does not affect Select.
Gottex shared this attentiveness to capacity constraint with another finalist in the Alternative Assets Fund Manager of the Year stakes, Federal Street and its Multi Strategy fund.
This fund, which is offered in Australia by Goldman Sachs JBWere, was shut off to new investors at just US$1 billion under management. It counts 19 long/short managers among its 24 underlying firms, as well as some event-driven and relative value players.
S&P’s Hogan was impressed by the manager selection skill of Federal Street’s staff, as well as the directors’ backing of their own process with a combined investment of $50 million in the Multi Strategy fund.
“You ask some of the fund-of-funds down here about putting their money where their mouth is, and you’re more likely to get ‘I’m too busy paying off my mortgage’,” Hogan says.
“Although to be fair, [Federal Street’s directors] are wealthy guys.”
The other finalist for Alternative Assets Manager of the Year was HSBC Republic and its Global Hedge Fund.
The fund, good enough for Challenger to retain following its recent purchase of HSBC Asset Management in Australia, also impressed Hogan.
He points to the edge the product gains over most of its fund-of-fund peers by the inclusion of global macro and managed futures managers among its 40 underlying firms.
— Michael Bailey
