Wednesday, August 01, 2007

Hedge fund produces stellar returns

Today's comment:

After last week's turbulence, the financial markets yesterday calmed down, as we had predicted, and a more realistic assessment of the state of the markets set in. Share prices were much stronger across the board, and we expect the second-quarter results published over the coming days to be very strong, bolstering the equity markets further. The US ISM Manufacturing Index should attract the most attention of the economic data releases scheduled for today.

---------------------------------------------------------------------------------

London & Capital's award-winning Global Fund of Hedge has experienced asset growth of 40% since December. The fund generated gross returns of 9% in the first half of the year with May being a particularly strong month - a return of 3.2%, the highest since inception.

The returns over the last year have been achieved while maintaining an annualised volatility of less than 4%, emphasising the company's stringent focus on risk control via a diversified portfolio. Lead-managed by Magnus Olsson, the portfolio's performance has been driven by a healthy contribution from core holdings and exceptional returns from the 'Special Opportunities' segment, which was introduced last year.

The segment represents approximately 20% of the total Global Fund of Hedge Funds portfolio and has become key to the company's ability to exploit new trends in financial markets. Among the most exciting generators of performance have been a carbon-financing fund (up 20% in the first half of this year) and a pharmaceutical fund focusing on developing countries (up more than 90% since investment was initiated in October 2006). The respective key drivers for these two holdings are inconsistencies in environmental regulation and the emergence of a consumer culture in emerging markets.

Olsson and his team are constantly on the lookout for new opportunities, partly to ensure that the fund remains highly diversified, and partly to generate the absolute returns that their investors seek. One area that they are now looking to exploit includes a relative value real estate fund, which exploits arbitrage opportunities arising from inconsistencies between the pricing of real estate securities and property derivatives. This is a rapidly expanding market where liquidity has improved in the last two years, yet it remains inefficient, enabling managers with strong experience of property and derivatives to make significant returns.

Meanwhile, core holdings continue to provide a healthy contribution to total performance. Fixed income arbitrage funds have been positioned well to exploit recent volatility in bond markets, while another key area is focused on mergers and acquisitions (M&A). Olsson and his team increased their weighting to M&A funds in anticipation of strong returns - and this strategy has not disappointed, as global M&A has reached record levels, driven by plentiful global liquidity and the cheapness of equity valuations.

'I am particularly pleased with our returns this year, as the underlying managers are delivering some of their strongest performance to date,' says Olsson. 'We expect the rest of the year to play out well for the hedge fund industry given the steady volumes of M&A activity in 2007 and increased volatility in many markets. The Special Opportunities segment has proved to be a highly successful strategy and we feel this offers investors greater potential for return on investment by mixing new opportunities alongside the more established strategies.'

The strong returns over the last six months have taken 12 month returns to 15% (to end June 2007). The Global Fund of Hedge Funds has seen assets under management grow to nearly USD160 million, taking hedge fund assets managed by London & Capital to USD300 million.

http://www.hedgeweek.com/

No comments: