HSBC Republic Investments is launching a hedge fund of hedge funds this month aimed specifically at the institutional and pension fund market.
The objective of the sub fund of the unit trust umbrella HSBC Republic Alternative Portfolio, domiciled in Guernsey, is to achieve total returns from selective investments in hedge funds worldwide. The fund will feature a 1%pa charge with the fees of the underlying portfolio already built into the NAV.
Typically, HSBC Republic charges 1.75%pa for its fund of funds products but has designed this portfolio with a more institutional level management fee and a high entry level of $2.5m. There is also a performance fee equal to 15% of any return exceeding US dollar three month Libor, plus 100 basis points, with a high watermark, payable annually.
At launch the fund will hold some 20 managers globally, consisting of various absolute return strategies and styles. Examples of holdings include Crescendo European, Martin Currie Absolute Japan and Lansdowne UK Equity portfolios.
Paul Dunning, chief executive officer at HSBC Republic, said: 'The fund is designed to appeal to institutions and pension funds, which are seeking to test the water.'
Jamie Murray, product development manager at the group, added: 'The fund of funds structure is starting to hold appeal for some European pension funds and institutions but has yet to gain much interest in the UK. Following the Paul Myners report last year, which stated pension funds need to consider more investments in alternative vehicles, it has been surprising the low take-up so far in the market,' he said. Viewing the fund as a one to two year project, Murray noted that a lot of work has to be done in the UK market to educate pension fund trustees on how hedge funds work. Pension fund consultants Watson Wyatt are making inroads in this area, he noted, but more emphasis needs to be made on persuading trustees that sensible amounts invested in hedge funds can add to returns and lower volatility.
Murray said: 'We have to start somewhere. Fund of hedge funds are already hugely popular in France, while the Scandinavian and Switzerland markets are also strong and these are starting to draw institutional money.'
The fund marks HSBC Republic's seventh fund of hedge fund portfolio, with the other six mostly aimed at high net worth individuals.