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The difference between this product and the higher octane Man AHL Diversified Futures is the existence of a principal guarantee with this new offering, which is intended to make the product user-friendly for the retail customer. The management of the underlying futures and options will be governed by a number of quant algorithms that will actively manage both the long and short side.
Actively managed futures and options are regarded as a bona fide hedge-fund strategy elsewhere in the world, but in Hong Kong such an investment mechanism does not require SFC (Securities and Futures Commission) approval and this product therefore is not treated as a hedge fund.
Man targets raising at least $10 million over the initial four-week subscription period, and the minimum investment will be $5,000. The management fee is 3%, and the performance fee is 20%.
If this fund were classified as a single-manager hedge fund (without a guarantee) it would require a $50,000 minimum investment, and if marketed as an unprotected futures fund, the minimum would be $30,000. There will be a ratcheted redemption fee, starting at 4% and falling to zero after four years.
Therefore the addition of the guarantee helps to structure this as a retail instrument. The guarantee is provided by HSBC, is backed by treasury bills and costs Man around 35 basis points per year. Initially, the guarantee will cover 90% of principal, rising to 100% as profits are locked in.
The fund will operate in more than 100 global financial markets, with the expected top four concentrations in currency, bonds, energy and equities respectively. The target return of the new fund is 12-15% net of fees.
It is estimated that 20% of the funds raised in the offering will be allocated to acquiring the futures positions themselves, and the rest will be kept on deposit, being used to purchase the collateral for the guarantee and for variation margin calls. The fund will not raise any external leverage, and in any event, the nature of the underlying futures and options provides that intrinsically.
The existing Man AHL Diversified Futures is an open-ended, non-guaranteed, managed futures programme that was distributed through private banks and independent financial advisers. This six-year old fund (the first retail hedge fund in Hong Kong, approved before the current hedge-fund rules were drafted three years ago) already has $600 million in assets under management and is recording a 15% return.
Unlike the existing open-ended fund though, this new product has a maturity term of just five years. The target is to track the return of Man AHL Diversified Futures, which typically has had volatility of around 16-19%.
ôAlthough we expect the fund to achieve annualised double digit returns over the 5-year lifetime, the principal guarantee structure does mean that the fund may be more conservative in some situations than the open-ended fund,ö says Matt Dillon, managing director of Man Investments in Hong Kong. ôAs well, there is the 35bp fee payable to HSBC Bank to act as guarantor. These factors may slightly reduce the performance of the guaranteed version. Having said that, the fund is unusual in that although guaranteed, it offers investors a 100% participation rate and 100% investment exposure in the underlying AHL Diversified programme.ö
AHL is a division of Man Investments, which has global assets under management of $54 billion through its core investment managers AHL, Glenwood, Man Global Strategies and RMF. Some 40% of ManÆs AUM is estimated to be sourced from the Asia-Pacific region.
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