Highly commended: Best performing diversified fund of hedge funds over three years The Aperio Master AlphaStrategy fund, launched by Bainbridge Partners in September 2003, is a diversified fund of hedge funds (FoHF) with around $370 million of assets under management (AUM). This FoHF makes up a substantial portion of the $950 million AUM of Bainbridge Partners as a whole. Under the guidance of portfolio managers Frederic Feve, head of portfolio management, and chief investment officer Antoine Haddad who founded Bainbridge Partners in 2002, the fund has produced annualised returns for investors of 4.94% with volatility of just 3.45%. This makes it one of the least volatile FoHFs in the market place. Haddad says Bainbridge Partners strives for a low risk profile. "Risk control is perfected in the construction of the portfolio," explains Haddad. He believes it is important to make sure the managers are not all following the same strategies and producing undesirably correlated returns. "Our portfolios are not built with a collection of ‘top stars'. Most of them will often have overlapping trades that will negate the benefit of diversification. We prefer building a ‘team portfolio' where the individual managers may not be headline-grabbing but the complementary nature of their skills produces a result that is." The fund also aims to keep neutral exposure to key macro indexes such as equity, fixed income and credit. It tries to create returns that are independent of and uncorrelated to stock prices and interest rates. This diversification of returns makes the FoHF valuable in terms of the diversification it can add to any existing portfolio, according to Haddad. The fund invests in a wide range of management strategies. The major ones are long/short credit (22.51%), managed futures (18.53%), equity long/short (15.91%), global macro (11.12%) and multi-strategy (10.44%). Haddad says that within this wide universe it is selective on which funds it invests in. "The success we have had in controlling risk comes down to the three pillars of our investment approach," he explains. "Firstly, we aim to be beta neutral on average and consider ourselves to be a true provider of absolute returns. While beta neutrality won't necessarily steer you clear of all obstacles out there, it is certainly a good start. Secondly, we aim to have a long volatility bias. It is this that has helped us achieve consistency of returns throughout the 2008 crisis. Thirdly, we aim to invest with managers that trade very liquid instruments." An insistence on transparency is also key. Of the 35 managers Bainbridge currently invests in, 15 provide position level transparency on a daily basis. For those investments not carried out through managed accounts, the company requires continuous access to the investment teams to discuss portfolio positions and return attribution as and when required. The strategy seems to be paying off. Since inception and through the traumas of the 2008, the fund experienced a maximum drawdown of just 3.95% and delivered positive returns of 3.04% in the difficult market conditions that year. It is continuing to hit its target of generating return of Libor +300 to 500 basis points with a maximum volatility of 4%. Fund facts Name of fund: Aperio Master AlphaStrategy Name of investment/manager company: Bainbridge Partners Portfolio managers: Frédéric Fève and Antoine Haddad Contact: 5 Young Street, 5th Floor, London W8 5EH (+44 (0)20 7368 6910; www.bainbridgepartners.com) Strategy inception: September 2003 Assets under management: $377 million (estimate at November 1, 2010) Annualised return: 4.95% (estimated at October 31, 2010) Annualised volatility: 3.45% (estimated at October 31, 2010) Strategy: multi-strategy Share classes: US dollar, euro, sterling, yen Administrator: Royal Bank of Canada, portfolio services group Auditor: Ernst & Young Custodian: Royal Bank of Canada, portfolio services group Domicile: Cayman Islands Management fee: 1.50% Performance fee: 10% Minimum investment: $100,000 or currency equivalent Lock-in/up: none Redemption period: monthly...
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