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The funds are the N1 Global Master SP, which starts with assets of $10 million, and its leveraged twin N1 Global II fund, which begins with assets under management of $35 million. The latter invests in the same underlying hedge funds as the first fund and is three to four times leveraged.
N1 targets an aggregate of $200 million for the funds after 12 months, and has indicated that it already has investor commitments of that level. Anticipated returns are 10%-12% for the unleveraged fund on volatility of 2%-2.5% and 15%-20% for the leveraged fund on projected volatility of 5%.
The investors at kick-off include European and Swiss private banks, high-net-worth individuals and private offices.
N1 plans to shortly launch the same product in Japan for retail distribution.
The funds have a quant approach to hedge fund manager selection. Their objective is to find low volatility managers producing repeatable non-correlated returns. Their key criteria are managers with a two-year track record, a minimum of $300 million in assets and a Sharpe Ratio of at least 1.0. The manager must have produced monthly returns that are 85% positive.
Another quant criteria applied by N1 is that the maximum recovery period of any draw downs cannot ever exceed 3 months. For example, a hedge fund with a loss of -1% cannot take more than three months to offset that loss. The manager must have also produced monthly returns that are 80% positive.
There is a maximum of 25% of the portfolio in any one strategy and no more than 5% in any one fund. At present, N1 invests in 43 funds.
Fees are 2% and 20% for institutional investors and 3% and 20% for retail investors. Redemptions are monthly.
The CEO and founder of N1 is Nicu Harajchi, who used to be managing director of K1 Fund Limited. He is joined by Army Yan, who is co-fund manager and has previously worked for several funds management companies in Hong Kong. The other co-fund manager is Kane Wong, who formerly worked at SHK Fund Management.
ôWeÆre doing this now because thereÆs so much investor liquidity here, but weÆre not investing in Asia specific funds,ö says Harajchi. ôIn fact only one fund is Asian. ThatÆs because their track record is usually too short and they have been unable to prove themselves in a negative market environment. Asian funds are predominantly long/short in markets that do not offer sufficient tools to hedge themselves properly.ö
Service providers are PFPC Bank as administrator, HSBC Private Bank as custodian, Barclays Bank as leverage provider, and Walkers, Baker McKenzie and Ogiers as lawyers.
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