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
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
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
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
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
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
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
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
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
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.
EVENT DRIVEN & DISTRESSED
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.
FIXED INCOME & CREDIT
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.
GLOBAL MULTI-STRATEGY $100M-$500M
MERRITT CAPITAL PARTNERS
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
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%,
GLOBAL MULTI-STRATEGY $500M-$1BN
NT ALPHA STRATEGIES FUND
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
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
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).
GLOBAL MULTI-STRATEGY >$1BN
ARCHSTONE OFFSHORE FUND
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
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
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,
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
ASIAN & EMERGING
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
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
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
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
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%,
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
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
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
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
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
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
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
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.
FUND OF HEDGE FUND STARS OF 2013