Reuters Edge

HDF says fund of funds not just about liquidity

ZURICH (Reuters) - Fund of hedge funds group HDF is trying to draw back investors, after its assets halved in the last year, with diversified liquid strategies and by continuing to offer clients monthly access to their money.

Alexandre Poisson, the managing director of HDF Switzerland, said that investors would benefit from HDF’s focus on strategies that use liquid instruments such as blue chip equities, high quality bonds and futures and avoidance of those using illiquid instruments, which rely on models to provide valuations.

“We see our funds of funds as a way for investors to diversify risk and get stable returns over time, not just a way to improve their liquidity like many of our peers,” Poisson said earlier this week.

“A well-structured portfolio can give them monthly access to their money rather than quarterly, without any liquidity mismatch.”

The International Organization of Securities Commissions recently said managers should ensure their funds have enough liquidity to make redemptions but this was not always possible during the crisis as a rash of redemptions forced some managers to limit or to suspend redemptions.

The liquidity of HDF’s funds was one reason for the flight of capital over much of the last year -- when assets dropped from about $5 billion to the current $2.5 billion -- even though HDF outperformed most peers, Poisson said.

“About 35 percent of total assets were withdrawn by investors, mainly private banks in need of liquidity, but unlike many competitors, we didn’t suspend redemptions or introduce gates to prevent withdrawals,” said Poisson.


HDF strong liquidity credentials are not its only selling point.

“We see our funds of funds as a way for hedge fund investors to diversify risk and to get stable returns over time, not simply a way to improve their liquidity,” he said.

Poisson said that to help clients achieve these goals, HDF would continue to eschew strategies like distressed debt and asset-based lending, where liquidity can get squeezed.

It also will avoid convertible arbitrage, which looks for mispricing between convertible bonds and the underlying equities, although HDF may invest in it when liquidity improves, he said.

HDF’s favorite strategies include fixed income arbitrage, as fixed income markets are volatile but very liquid and the strategy offers opportunities from government issuance and quantitative easing. The group also likes global macro -- which takes directional bets on currencies, markets and debt -- and discretionary trading.

“We like discretionary trading funds because they can go long or short quickly without any directional exposure. They are uncorrelated to equities, bonds or commodities, and even hedge funds themselves,” Poisson said.

HDF does not seed funds but does invest in early-stage funds with assets between $100 million and $1 billion and where fund managers have invested a large part of their personal wealth.

“When you invest early you get better transparency, build a better relationship with the managers, and have more control over the investment,” Poisson said. (Editing by Karen Foster)