Following a year in which funds of hedge funds recorded an average negative return of 20%, a new fund called Stockade Asian Trading Strategies hopes to come out ahead by not touching long-biased strategies.
Paul Absalom is launching the Singapore-based fund of funds and takes the role of CIO and CEO. He is a veteran of HSBC where he was head of hedge fund and central bank sales and helped to establish the bank's Asian special situations business. Before then he worked at Goldman Sachs in the fixed-income and commodities department. Immediately before starting Stockade, Absalom was involved in the establishment of Teak Capital, a structured finance and restructuring firm.
He is joined by portfolio manager Tiong Yee Koh, who previously established the fund of funds platform at UOB, and the Stockade COO and chief risk officer is Jacob Shin. He used to work at Richcourt Fund Advisors and the World Bank Pension Fund.
Stockade will only invest in funds that operate non-long biased strategies, such as macro, relative value arbitrage, currency and quant. Long-biased strategies, such as equity long/short, distressed, special situations, convertible arbitrage credit or directional volatility will not be included in the portfolio.
As it will invest in strategies that produce uncorrelated non-directional returns, the fund also offers a beta overlay to investors. The way this works is that when an investor thinks markets are going to go up, then he tells Stockade to give him a beta overlay, and they get that beta return bolted onto their return from the non-directional fund of funds portfolio. That beta return could be positive or negative -- so they need to make that call when the timing is right.
The fund will consist of approximately 10 funds and the fund charges a management fee of 1.5% and a performance fee of 10%. Target annual returns are 10% on 5% volatility. The back-tested portfolio yielded a 14% return in 2008 with a 3.5% volatility. The capacity of the fund today is $500 million and marketing in the USA and Europe will commence soon.
The service providers are UBS as fund administrator, Rajah & Tann and Walkers as lawyers and Ernst and Young as auditor.