Edmond de Rothschild Capital Holdings outshines peers to win three performance stars

April 04, 2014  

InvestHedge Stars in 2013 notch up a median return of 16.26% compared to FoHF industry average of 8.67%

By Siobhán Hallissey

The equity rally in 2013 saw funds of hedge funds, especially those with an equity bias, resume some of their former glory; it was after all the Chinese Year of the Snake, a year of transformation and resurrection.

While in number, the commingled FoHF industry may be shrinking, in terms of power and performance, the argument for diversified multi-manager investing is as strong as ever – if not stronger – as witnessed by the expansion in the creation of bespoke multi-manager hedge fund portfolios.

Tracking the performance of the bespoke hedge fund portfolio industry is hard, and largely unverified, which is why many firms continue to showcase the track records of their flagships that in the case of some FoHFs, including Edmond de Rothschild Capital Holdings the winner of three 2013 Stars, are four decades old.

Rick Sopher’s business in London outshone its peers by picking up Stars for European Capital Holdings, Trading Capital Holdings, and Discovery Capital Holdings, the firm’s newest offering that focuses on emerging managers. The funds had benchmark outperformance of 2.7%, 7.39% and 5.07%, respectively, with global macro outshining its peers by the greatest margin. "The positions that we had been building up in emerging market macro trading were especially profitable," says Sopher.

What is reassuring when looking at the winners of the InvestHedge Stars of 2013 is how many of the names, also including Sandalwood Securities and The Archstone Partnerships, have been around for a long time. The Archstone Offshore Fund, which returned 16.26% in 2013, outperformed its benchmark by 7.49%, while Sandalwood’s Bodleian Partners, which was up 15.88%, outperformed the arbitrage index by 8.51%.

This ranking of the InvestHedge Stars of 2013 is designed to acknowledge those funds that have excelled on a 12-month risk-adjusted basis according to the standard InvestHedge Awards methodology which is outlined below. Every year InvestHedge also recognises the FoHFs with the highest risk-adjusted performance over a five-year period at the InvestHedge Awards, which this year will take place once again at the British Museum on 24th September.

In 2013, funds of hedge funds returned 8.67%, according to the median return of the FoHFs listed in the InvestHedge database. It was the best performing year for the global FoHF universe since 2009 and all but managed futures and commodities achieved positive returns, with US equity FoHFs posting the highest returns, up 16.36%.

Looking at the returns of all the FoHFs in the InvestHedge database, 44% achieved gains of over 10% in 2013 and more than a quarter of the funds in the database achieved returns of between 10% and 15%, while 18% achieved an annualised compound return of over 15% (see distribution of returns chart above).

By looking at the graphs of the Stars of 2013 it is clear to see that selecting the best fund of hedge funds in a given category can really outperform a basket of average funds. The median return of the 13 funds that were awarded an InvestHedge 2013 Star achieved 16.26%. These stars outperformed their benchmarks by between 2.70% for European Capital Holdings in the European strategies category that gained 17.77% for the year, to 12.14% in outperformance for Persistent Edge Asia Partners Master Fund that achieved a return of 23.81% in 2013.

After Persistent Edge, the second highest outperformance of the benchmark came from Merritt Capital Partners in the global multi-strategy category. The newcomer to the Stars was up 20.3% in 2013, outperforming the global multi-strategy median by 11.53%. The third largest outperformance came from Constellation Wealth Advisors’ Constellation Hedge Partners. The fund, which is sub-advised by ABS Investment Management, was up 22.59%, outperforming the InvestHedge global equity index by 9.02%.

What is clear looking at the returns of these 13 funds of hedge funds, most of which have track records dating back at least a decade, is that knowing how to find the right manager, in the right strategy, at the right time and sized in the portfolio in the right way is an art that not everyone can excel at. While not every investor seems to allocate to hedge funds for their outperformance potential, performance still counts especially as more and more investors now understand the power of compounding.

The Stars of 2013 in the global funds of hedge funds world are selected using the traditional InvestHedge Awards methodology. The aim is to recognise those global FoHFs that have produced the best risk-adjusted returns over a one-year period across a variety of strategy areas. The reporting period is 1 January 2013 to 31 December 2013 and the FoHF Stars are selected from data in the InvestHedge Database, which tracks more than 1,600 active FoHFs run by 435 management companies globally.

As the ranking of the FoHF Stars of 2013 is designed to offer investors who want to track the performance of FoHFs, InvestHedge has continued to require a minimum asset level of at least $100 million. Special mention is made for high performing funds that might not meet the asset level criteria.

The FoHF Stars of 2013 are ranked by risk-adjusted returns and so have to have the strongest Sharpe ratios over the 12-month period and have to beat the median returns in their relevant peer group. The overall FoHF Star of 2013 in each category is the fund that achieves the best returns, as long as it also achieves Sharpe ratios within 25% of the best of the potential nominees and the fund has to be within 10% of its high watermark.

When equities rally, arbitrage, fixed income, credit and event-driven and distressed strategies typically lag behind in terms of performance. Compared to the InvestHedge Composite, which was up 8.67% in 2013, all of these strategies on average did well – with the InvestHedge Arbitrage Index up 7.37%, the Distressed Index up 9.47% and the Fixed Income Index up 8.16%. Many of these FoHFs mix-and-match underlying credit, event-driven, distressed and arbitrage managers, often making it hard to define where funds fit in the general strategy buckets.


The InvestHedge Arbitrage Star of 2013 was Bodleian Partners A, the highest performer within range of the top Sharpe ratio. The $350 million fund, managed by Sandalwood Securities, gained 15.88% in 2013, beating the InvestHedge Arbitrage Index by 8.51%. Its 2013 Sharpe ratio of 4.15 was within range of the highest Sharpe set by the $456 million NB Diversified Arbitrage Fund II.

Bodleian Partners A, which is biased towards multi-strategy credit and event-driven managers, was launched in April 1994. Among its underlying managers are David Tepper’s Appaloosa Investment, which ranked fifth in Rick Sopher’s annual ranking of the Great Money Managers with gains of $21.2 billion since inception in 1993; Cerberus SPV, which was the fund’s top performer in December – up 13.86%; Corvex Partners; and Third Point Partners.

Neuberger Berman’s fund, which launched in August 2004, was up 9.39% in 2013, producing the highest Sharpe ratio of 4.55 of those FoHFs that were above the asset minimum. Several other funds in the arbitrage category saw double-digit returns in 2013. These included the $364 million Archstone Absolute Return Strategies Fund, managed by Archstone Partners. This fund, which launched in January 2002, returned 11.07% for the year, with a Sharpe ratio of 3.57.

The $184 million GHF Sicav Arbitrage Opportunities A Fund, last year’s Star in this category, also returned double digits in 2013, up 10.62% with a Sharpe ratio of 4.03. The Multi Strategy SICAV-Pendulum fund, which is managed by Notz Stucki, had the same Sharpe of 4.03, but gained 9.92% for the year. Pine Grove Asset Management’s $390 million Pine Grove Partners was also within range and was up 8.89% for the year with a Sharpe ratio of 3.79.


Avenue Strategic Partners set the highest Sharpe in the event-driven and distressed FoHF peer group at 3.98 for 2013. The $160 million fund, which is managed by Marc Lasry’s 12th Avenue Management, returned 10.54% in 2013, when the InvestHedge Distressed Index was up 9.47%.

The InvestHedge Event Driven & Distressed Star of 2013, however, was the $123 million Antarctica Credit and Distressed Fund that returned 15.69% for the year outperforming the benchmark by 6.22%. The Antarctica fund, which is managed by Antarctica Asset Management, was launched in February 2008 and had a Sharpe of 3.60.

The Antarctica fund has 70% of the portfolio invested in distressed/event-driven strategies and the remaining 30% of the book in credit. According to Filip Vandenven, Antarctica looks at the universe in terms of buckets of opportunity, rather than classic strategies. This means the firm will have categories that are labelled neither credit or distressed.

One example is mortgages, Vandenven said. "One can argue that it is a fixed-income product and therefore falls under credit, but we play this market because of the distressed opportunities it offers. As the distressed mortgage portfolios mature, they become more credit portfolios. It is not quite as obvious, which is why we prefer to look at our portfolio in terms of themes. We look at it in the form of a matrix of asset class, opportunities/themes and managers," he explained.

The $117 million Pioneer Restructuring Fund, which is managed by Pioneer Alternative Investment Management and which had a higher Sharpe than Antarctica at 3.66, saw gains of 11.17% in 2013.


The InvestHedge Fixed Income & Credit Star of 2013 was the Lighthouse Credit Opportunities Fund. The fund, which is managed by Lighthouse Investment Partners, a $7.5 billion firm, was up by 15.06% in 2013 and outperformed the InvestHedge Fixed Income Index by 6.90%.

The $505 million Lighthouse fund had a Sharpe ratio of 3.31, which was in range of the top Sharpe set by the Morrocroft Special Opportunity Fund II, a fund launched in October 2010 that returned 14.83% in 2013.

In terms of 2013 asset allocation, the Lighthouse Credit Opportunities Fund, which was launched in January 2003, allocated 57% of its assets to distressed credit, 19.6% to event-driven credit, 15.2% to capital-structure arbitrage and 1.2% to opportunistic credit.

The fund does not a charge a management fee but only a 10% performance fee. The only year that it saw negative returns since inception was 2008, when the Lighthouse Credit Opportunities Fund was down 30.55%; its best year was its first year when it was up 24.08%. December 2013 returns of 3.53% boosted the annual returns of the fund.

Gorelick Brothers Capital’s $153 million Morrocroft Special Opportunity Fund II, which was the Star in this category in 2012, had the highest Sharpe ratio of 4.10 of those funds in the fixed income and credit peer group.

Hot on the tail of the Morrocroft fund was the $380 million Sandalwood Debt Fund, which returned double digits in 2013 up 13.23% with a Sharpe ratio of 3.82. The $3.9 billion Permal Fixed Income Holdings, which was launched in December 1996, was up 11.07% for the year but had a Sharpe ratio of 2.44 that was out of range of the Sharpe set by the Morrcroft fund.


The global multi-strategy peer group, which is made up of 430 FoHFs, was up 8.77% in 2013, according to the InvestHedge median. All the global multi-strategy Stars, however, returned more than double the average. The universe of global multi-strategy funds is so large that it is divided into three groups by asset size.

2013 Performance: 20.30%

For the global multi-strategy peer group with assets between $100 million and $500 million the Sharpe ratio was set by Hedge Invest’s $185 million Hedge Invest Multi-Strategy fund, which returned 12.76% in 2013 with a Sharpe of 4.66.

For this category of smaller global multi-strategy FoHFs the InvestHedge Global Multi-Strategy Star of 2013 was Merritt Capital Partners. The $133 million fund, managed by Merritt Capital Investment Advisors, returned 20.30% in 2013 with a Sharpe ratio of 3.98. The fund, which was launched in January 2005, outperformed the peer group by 11.53%. The performance was its highest since 2007 when it was up 21.27%.

Merritt Capital Partners invests more than 50% in long/short equity managers, including Viking (15%), Bay Pond (6%), Coatue (5%) and Glenview and Hound with 4% of assets apiece. Of the 24 managers the fund allocated to, Knighthead and York Credit make up the distressed allocation, while Discovery is a macro allocation and Nokota and Highfields are multi-strategy names.

Other funds in the peer group that were within range of the highest Sharpe include the $225 million Permal Investment Partners, managed by Permal Asset Management, which was up 18.99% for the year with a Sharpe of 3.64. The $225 million Morgan Stanley Opportunistic Fund was up by 17.78% in 2013 with a Sharpe ratio of 4.18, while for Meridian Capital Partners, 2013 was the highest performing year to date as the $120 million Meridian Diversified Fund returned 17.10% with a Sharpe ratio of 3.80.

EACM Advisors’ EACM Absolute Return Fund and Mellon First Principle Fund were both within range of the highest Sharpe and produced returns of 10.97% and 12.95%, respectively. While the $183 million Blue Elite Fund, $413 million Kairos Multi-Strategy Fund and $107 million Spruce Absolute Return also achieved double figures and were over the Sharpe required of 3.49 with returns of 11.31%, 12.59% and 13.42%, respectively.

2013 Performance: 13.02%

The UBS Global Alpha Strategies Fund, which is managed by UBS Alternative and Quantitative Investments, set the highest Sharpe in this category of medium-sized global multi-strategy funds of funds with assets of $500 million to $1 billion. The $776 million fund, which was launched in March 2001, returned 12.43% in 2013 with a Sharpe ratio of 4.41.

The InvestHedge Global Multi-Strategy Star of 2013 for those funds that manage between $500 million to $1 billion was the NT Alpha Strategies Fund, which is managed by Northern Trust Alternatives based in Chicago. The $512 million fund was up by 13.02% in 2013 with a Sharpe ratio of 3.57. It was the fund’s second- highest performing year after returning 13.96% in 2007.

The NT Alpha Strategies Fund, which was launched in September 2004, invests with 27 managers, including North Pole, HG Vora and Tourbillion, with the top 10 making up nearly 50% of the portfolio. The strategy allocation is 39.2% in hedged equity, explaining how it could capitalise on the equity rally, 33.9% in event driven, 14% in relative value and 10.8% in global macro.

SAIL Advisors’ SAIL Topaz Fund and the Culross Global Fund, which is managed by Culross Global Management, were both within range of the top Sharpe. The funds gained 11.17% and 11.09% for 2013, respectively. The James River Multi-Strategy Fund also achieved double-digit returns for the year. The $643 million fund, which is managed by James River Capital Corporation gained 10.25% and achieved a Sharpe ratio of 4.30.

Aurora Investment Management’s Aurora Global Opportunities Fund returned 11.53%, but was slightly out of range with a Sharpe of 3.01. Although Banca de Ceresio’s $776 million Global Managers Selection Fund had the highest performance of the mid-sized multi-strategy peer group, up 16.62%, its Sharpe ratio of 2.97 put it out of range to be 'nominated’ using the InvestHedge Awards methodology (see page 21).

2013 Performance: 16.26%

The returns for the majority of the funds included in the global multi-strategy category with assets over a $1 billion are slightly lower than those in the smaller and middle assets categories. For those global multi-strategy funds with assets of more than a $1billion, the InvestHedge Global Multi-Strategy Star of 2013 was the Archstone Offshore Fund.

The fund, which is managed by Archstone, achieved a return of 16.26% and a Sharpe ratio of 4.03. The fund outperformed the peer group median return, which was 8.77%, by 7.49%. The New York-based firm manages $2.3 billion in the strategy and the onshore version of the fund gained 15.79% in 2013 with a Sharpe ratio of 4.12.

"Historically, our portfolios have had a long equity bias. While the equity market rally in 2013 certainly provided a tailwind for our more directional managers, investing in long/short equity was far from a consensus allocation two years ago. Having the discipline to remain committed to our proven approach was instrumental to our success," explained Joe Pignatelli, president and co-portfolio manager of The Archstone Partnerships in New York.

"Additionally, we have been focused on adding managers that bring unique exposures and a diversity of investment styles to our portfolio, all while keeping the total manager count below 20," he added. The firm allocates 60% of its assets to directional long/short equity managers and the remaining 40% of assets to non-directional absolute return managers. In general, Archstone prefers managers with broad mandates who can dynamically adjust their positioning as the opportunity set evolves.

The top Sharpe for this category was set by the Jubilee Absolute Return Fund with a Sharpe ratio of 4.23. The $2.5 billion fund, which is now managed by Permal Investment Management Services but was launched in April 2004 by Fauchier Partners, returned 13.49% in 2013 – the highest return for the fund since 2007.

Lighthouse Investment Partners’ $2 billion Lighthouse Diversified Fund was within range of the highest Sharpe ratio and produced returns of 12.73%. There were a number of other funds that produced double-digit returns and were within range of the top Sharpe. These included the $5.4 billion Entrust Capital Diversified Fund, which is managed by Entrust Partners Offshore, and returned 10.98% with a Sharpe ratio of 3.42. Prisma Capital Partners’ Prisma Spectrum Fund achieved a similar return of 10.96% with a Sharpe ratio of 3.24.


The US equity fund of hedge funds peer group was the highest performing category of 2013 with the InvestHedge US Equity Index up 16.36% for the year. The US equity rally boosted the fortunes of many hedge fund, but the InvestHedge US Equity Star fund of funds for 2013 is New Providence Associates. This fund beat the InvestHedge peer group US equity FoHF benchmark by 2.78%

The $130 million fund, managed by New Providence Asset Management in New York, gained 19.14% in 2013 also setting the Sharpe ratio hurdle with a Sharpe of 3.58. The fund, which was launched in January 2001, outperformed the US equity strategy median return by 2.78%, in a year where the S&P 500 had its strongest year since 1997.

New Providence Associates, which is known more for its outsourced chief investment officer business model than as a fund of hedge funds, closed the year with 11 underlying managers. It added a US-focused, value-orientated long/short equity hedge fund manager in January 2014.

The GHF Sicav Long Short US fund, which is managed by Thalia in Lugano, followed closely behind New Providence Associates with a return of 19.11% for 2013. The $100 million fund had a Sharpe ratio of 3.31. For 2012, Thalia picked up Stars for macro and arbitrage.

With its equity bias, The Archstone Partnerships had a great 2013, picking up an InvestHedge Star for performance in global multi-strategy in 2013 (see page 23). For US equities, Archstone Partners AP Opportunities Fund was also within range of Sharpe and produced returns above the benchmark of 17.37%. The $300 million fund, which launched in October 1995, had a Sharpe ratio of 3.52.

MirAlt Sicav North America, which is managed by Mirabaud Asset Management, and Global Selection Advisors’ American Selection Holdings, returned 18.31% and 18.05% in 2013 with Sharpe ratios of 3.25 and 3.15, respectively.


European Equity funds of hedge funds were among the leading performers of 2013 and the InvestHedge European Equity index gained 15.07%. The InvestHedge European Multi-Strategy index, although lower, still gained a double-digit return of 10.1% for the year. For this category the European risk free rate was used to calculate the Sharpe ratio.

With the highest Sharpe ratio and highest performance of those funds that met the asset minimum in the peer group, the InvestHedge European Strategies Star of 2013 was European Capital Holdings. The $560 million fund, managed by Edmond de Rothschild Capital Holdings, gained 17.77% in 2013, with a Sharpe ratio of 3.6.

European Capital Holdings, which was launched in November 1998, outperformed the InvestHedge European equity index by 2.70% in 2013. The fund’s strategy allocation was 60% in equity long/short, 19% in global macro and 21% in long equities, explaining how the fund captured the equity rally in 2013.

"We are seen as a European fund of hedge funds and some investors view each one of those as a dirty word. However, even though our net equity exposure remained cautiously low, our 17.8% performance in 2013 was ahead of the return of the European indexes. This reflected our judicious selection of managers, but also their ability to benefit from the 'gifts’ that the European markets are currently offering to those talented enough to spot them," said Rick Sopher, chairman of the Capital Holdings Funds.

European Selection Holdings came a very close second in terms of performance with returns of 17.75% in 2013. The $330 million fund, which is managed by Banca del Ceresio’s Global Selection Advisors, had a Sharpe ratio of 3.06 and outperformed its benchmark, the InvestHedge European multi-strategy index, by 7.65%.

Notz Stucki’s Long/Short Selection – Lynx class also posted a return that was over 17% for the year but the fund is still not within 10% of its high-water mark. MirAlt Sicav Europe I and Permal European Holdings fund were both up 14.34% and 16%, respectively, but both funds were out of range of the top Sharpe.


The InvestHedge Asian Strategies Index was up 11.67% in 2013 with a large number of the funds within the category returning double figures. The top performer of the category was Nippon Selection Holdings. The fund, which is managed by Global Selection Advisors, a subsidiary of Banca del Ceresio, returned 34.98% in 2013. The $125 million fund outperformed the benchmark by 23.31%, however the Sharpe ratio for the fund was 2.64, which was out of range of the Sharpe required, which was set by the Persistent Edge Asia Partners Master Fund.

The InvestHedge Asian Strategies Star of 2013 is Persistent Edge Asia Partners Master Fund, which had the highest Sharpe ratio of 3.99 and a return of 23.81% for the year. The $690 million fund, which is managed by Persistent Asset Management, outperformed the Asian and emerging market peer group by 12.14%.

The multi-strategy fund of hedge funds that invests with Asia-Pacific focused managers lauched in April 2003 and was the winner of the 10-year award at the 2013 InvestHedge Awards in September last year, as well as six other InvestHedge Awards over the years. For the year, Persistent Edge invested with 53 managers, with technology exposure making up 21.4% of the assets. Only five of the managers are less than a year old, but 13 managers making up nearly 25% of the assets are between one to three years old. The majority of the assets (47.3%) are with managers that are between three and five years old, and there are 16 managers that have a track record of five years or more.

The $165 million SAIL Asia Pacific Managers fund was also within range of the top Sharpe with a Sharpe ratio of 3.81. The fund, which is managed by SAIL Advisors, returned 15.76% in 2013, while the Penjing Asia Fund, managed by Gottex Penjing Asset Management gained a similar return, up 15.74% for the year. However with a Sharpe ratio of 2.54 it was out of range of the Sharpe set by Persistent Edge’s fund. The $131 million Permal Japan Holdings was another strong performer in the category up 29.04% in 2013, but once again its Sharpe ratio of 2.80 was also out of range of the top Sharpe.


With the rally in the stock markets in 2013, any strategy with equities was likely to have had a good year. The Lighthouse Global Long/Short Fund set the highest Sharpe ratio of 5.46 in the global equity FoHF peer group. The $1.3 billion fund, which was launched in January 2005, returned 20.46% for the year, compared to the InvestHedge Global Equity Index that was up 13.57% for the year on a median basis.

The InvestHedge Global Equity Star of 2013 was Constellation Hedge Partners, a $464 million fund that was up 22.59% in 2013 – its best year since inception. The fund, which had a Sharpe ratio of 4.53, is managed by Constellation Wealth Advisors with Alain De Coster’s ABS Investment Management as sub-adviser. ABS also posted strong returns of 19.31% and 18.86% for the ABS Limited Partnership and ABS Global ERISA Portfolio funds respectively, but were out of range of the Sharpe required.

Constellation Hedge Partners, which was launched in January 2010, outperformed the global equity peer group by 9.02% in 2013, starting with the top performing month where the fund was up 3.4%. The difference in performance between the ABS portfolio and Constellation Hedge Partners can be attributed to a pure equity portfolio for ABS, while the team at Constellation Wealth Advisors has 83% in equities.

The remainder of the portfolio is allocated to credit and distressed (7%) and global macro (8%), both of which are likely to have given the fund a higher Sharpe ratio than that of ABS Limited Partnership and ABS Global ERISA Portfolio that was 3.84.

Constellation Hedge Partners allocates to 14 managers, with the top 10 positions making up more than 80% of the portfolio. Global equity makes up some 20% of the assets and is run by three managers, while US equity and technology, media and telecommunication stocks make up 16% and 15% of the portfolio in the hands of two specialists each.

European and emerging market equities are 8% apiece of the portfolio in the hands of two different specialist managers, while life sciences equity long/short is an 11% allocation run by one manager.

The $120 million Benchmark Plus Long Short Partners – Real Equity Fund, which is managed by Benchmark Plus Management, was up 22.26% in 2013 with a Sharpe ratio of 4.72. Hedge Invest’s $300 million Hedge Invest Global Fund and the $130 million Orbit Global Strategy Fund I, which is managed by Pioneer Alternative Investment Management, were also within range of the top Sharpe and returned 13.97% and 15.40% respectively.

Spruce Capital Management’s $221 million Spruce Global Equity Fund had a strong year in 2013 and returned 26.73% with a Sharpe ratio of 3.85, but was out of range of the top Sharpe. Also out of range was Permal Investment Management’s Jubilee Absolute Equity Fund. The $300 million fund, which is part of the old Fauchier Partners stable, gained 16.50% in 2013 with a Sharpe ratio of 4.07.


Emerging manager funds of hedge funds had a strong year in 2013 and the InvestHedge Emerging Managers Index gained 12.97%. This category is gaining favour as funds of funds look for ways to differentiate themselves in a sea of investors allocating directly to big names.

The $386 million Alternative Investments Institutional fund had the highest Sharpe ratio of 4.97 in the peer group. The fund, which was launched in January 1998 and is managed by David Storr’s Alternative Investment Group, returned 15.39% in 2013.

The $745 million Prima Capital Fund managed by Fundana and the $140 million Corbin Kingsbridge Fund were within range of the top Sharpe and produced returns of 15.67% and 15.16%, respectively.

But the InvestHedge Emerging Managers Star of 2013 was Edmond de Rothschild Capital Holdings’ newest product, Discovery Capital Holdings. The $200 million fund, which was technically launched within another portfolio in February 2000 but spun out in 2012, gained 18.04% in 2013 with a Sharpe ratio of 3.78. The fund, managed by Rick Sopher and his team in London, outperformed the emerging managers peer group by 5.07%.

Sire Partners had the second highest performance of those funds that met the asset minimum in the peer group returning 16.1% in 2013. With a Sharpe ratio of 2.73, however, the fund was out of range of the top Sharpe. One fund that was too small to be considered but whose unaudited 2013 performance appears to be off the charts is West Mountain Partners. The $42 million fund, which was launched in December 2002, saw returns of 92.2% for 2013 due to an unaudited return of 85.6% in December. "A recent re-pricing of a manager’s positions is what caused West Mountain’s exceptional performance in 2013," explained Paul Alar, managing director.

"There have only been two significant trades since 2008 and, in both cases, West Mountain was in front of them. For example, in 2008, we saw the subprime crisis coming and allocated to a manager who returned 350% as the market crashed. Since then, risk-on has been the trade," he added.

"Recognising this, West Mountain allocated to a structured credit manager that began making loans to private companies during the latter half of 2008 and 2009 when credit markets had all but dried up. The manager was able to secure very favourable loan terms including high interest rates and substantial over-collateralisation," continued Alar. All of the private companies in the manager’s portfolio were unable to pay back their loans so it took equity ownership of their assets at cents on the dollar, and the portfolio was re-priced for December.


Global macro as a fund of hedge funds category was largely flat in 2013, while the managed futures part of the category was in negative territory. However for both FoHFs and hedge funds in this category the dispersion between managers is wider than in many of the more mainstream equity categories. For this reason, although the InvestHedge Global Macro Index was only up 0.71% on a median basis, many of the potential Stars had far higher performance.

The InvestHedge Global Macro & Managed Futures star of 2013 was Trading Capital Holdings, which is managed by Edmond de Rothschild Capital Holdings in London. With the highest performance of those funds in the peer group that were above the asset minimum, this fund set the top Sharpe at 1.61. The $1 billion fund, which was launched in July 2003, returned 8.10% in 2013, outperforming the peer group by 7.39%.

The fund has 96.9% of its assets with global macro managers investing in the equity, fixed income, foreign exchange and commodities markets, with the remainder in relative value strategies. Since inception, the fund has only had one down year in 2008.

"Our approach of identifying special themes and finding managers to execute on those themes paid off in 2013. This enabled Trading Capital Holdings to make meaningful positive returns from the few themes in macro investing that actually performed in 2013," said Rick Sopher, chairman of the Capital Holdings Funds in London.

With a Sharpe of 1.37, Optima Fund Management’s $450 million Optima Discretionary Macro Fund was the only other fund with assets of more than $100 million to have returns within the Sharpe range set by Trading Capital Holdings. Optima’s fund, which launched in July 1991, returned 5.23% in 2013.

There were a number of funds that performed higher than the InvestHedge average and were above the asset minimum level but were out of range of the highest Sharpe. These included the Morgan Stanley AIP Global Macro Fund, which is managed by Morgan Stanley Alternative Investment Partners. The $450 million fund returned 4.98% for the year with a Sharpe ratio of 1.16.

Stenham Asset Management’s $130 million Stenham Trading Fund, the $3.5 billion Permal Macro Holdings fund and Thalia’s $130 million GHF Sicav Global Macro fund were also above the asset limit and benchmark but out of range in terms of Sharpe. These funds returned 3.88%, 2.93% and 3.26%, respectively.


The InvestHedge Commodities Index was down 3.20% in 2013, in the third consecutive year of negative performance for the strategy, and was one of the only indices (along with the managed futures index) to end the year in negative territory.

Despite the peer group’s negative return, the InvestHedge Commodities Star of 2013 was Pinnacle Natural Resources, a fund that had both the highest performance and Sharpe ratio of those funds that met the minimum asset limit. The $2.2 billion fund, which is managed by Pinnacle Asset Management, was up 1.08% for the year with a Sharpe ratio of 0.3. Against the commodities and natural resources peer group, Pinnacle Natural Resources, which launched in October 2003, achieved an outperformance of 4.28% compared to the InvestHedge Commodities Index.

Pinnacle’s fund invests in a highly diversified portfolio of 25 to 30 managers, all of whom take an active, fundamental, long/short approach to commodities. "Our focus on market-driven diversification along with flexible directional traders helped us navigate a negatively performing commodities complex. We remained dedicated to our core investment process of research and market surveillance – and continued to avoid chasing popular themes – allowing our portfolio to remain balanced and alpha-focused during a year like 2013 when no real bull or bear market played out," said Jason Kellman, chief investment officer at Pinnacle.

The majority of the portfolio (74%) is invested in the US market, with 24% in Europe and 2% in Asia. In terms of strategy exposure, 58% of the fund is allocated to directional trading managers, 38% to relative value trading, 25% to foreign exchange and interest rates trading and 2% to privates and financing.

Grains make up the bulk of the commodities in the Pinnacle portfolio (24%), with natural gas making 22%. Crude oil and derivative products of oil make up 13% of the portfolio and base metals and electricity 11% and 10%, respectively. Softs and livestock have a 7% allocation apiece, while precious metals are 4%.

The fund’s only negative year was the year of its inception, where it only traded for three months otherwise capital preservation is at the heart of Pinnacle’s strategy (InvestHedge, February 2014). Pinnacle has a second fund in this category called the Pinnacle Physicals & Financing Master Fund, which only has $30 million. This fund was also up 1.08% with a Sharpe of 0.25.

Aurelian Global Resources, the Star of 2012, was the only other qualifying fund in terms of assets to be in positive territory in 2013. The fund gained 0.24% in 2013 but was out of range of the top Sharpe set by Pinnacle Natural Resources. The $430 million fund is managed by AC Investment Management and launched in April 2006.

There were some funds that did not meet the asset minimum but produced strong returns compared to the peer group. These include the $80 million Galileo Natural Resources Fund – managed by GL Funds – which returned 6.62% with a Sharpe ratio 1.26, and the $19 million Ceres Agriculture II fund – managed by FourWinds Capital Management – which returned 9.43% for the year with a Sharpe of 1.34.


Part of the energy of the 2013 Year of the Snake is that of transformation and the funds of funds landscape is no longer what it was prior to the financial crisis. The end investors are increasingly realising that hedge funds are an integral part of their portfolios and as such some strategies, such as long/short equity, are not even seen as alternatives any more.

There were a number of US FoHF managers who ventured into the daily liquidity space in 2013, creating 40 Act daily liquidity mutual fund portfolios that will enable them to reach out to retail investors in defined contribution schemes through partnerships with firms such as Fidelity. InvestHedge will be exploring this new phenomenon at the InvestHedge Forum USA on 25 June 2014 in New York that will be themed Liquid Alternatives: Fad or Future?

For now, funds of hedge funds have the potential to create products for this new more liquid world and raise considerable assets with the right distributor. Although it is interesting to note that none of the Stars of 2013 have so far taken the retail FoHF road. Performance in the mutual fund world is even more important as additional distribution fees cut into returns.

As consolidation in the FoHF industry continues, more groups are offering more niche offerings, making these strategy specific performance rankings easier to sort the wheat from the chaff when it comes to selecting the best of breed for a particular strategy. Credit and special opportunities funds are popular additions to portfolios, especially as many of these come with less liquid investments likely to offer high-risk premia for locking up assets for longer. Permal is a group that offers product right across the liquidity spectrum (InvestHedge, March 2014).

Edmond de Rothschild Capital Holdings has carved out from one of its funds a new fund called Discovery Capital Holdings, an early-stage investment fund that focuses on the smaller managers; a trend that a number of other FoHFs are also embracing. Nearly 79% of the InvestHedge Billion Dollar FoHF Club that replied to the question of emerging manager investments has some form of focus towards the newer or smaller end of the manager spectrum.

Alongside niche multi-manager investing, more experienced investors will continue to want to either allocate directly with an adviser from either the FoHF world or consulting community, or take a halfway route between this and commingled investing with bespoke alternative portfolios. These can be designed to either complete existing portfolios, or to capture returns that are missing, or even as is the current trend in the US to overlay a risk management structure on top of an existing portfolio, also called a risk-parity strategy (InvestHedge, February 2014).

For this reason, InvestHedge is planning to start tracking the performance of customised portfolios that are reported in compliance with Global Investment Performance Standards. But whatever investors decide to do, another investment cycle of equity rallies and interest rate uncertainty is likely to see more assets flow into hedge funds and, despite all the negative press, picking the 'right’ fund of hedge funds for the right reason, as can be seen by these Stars of 2013, is certainly still a sensible way to go for diversity and performance.


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