Australian hedge fund Vertex Capital has launched its second absolute return fund, the Vertex Premium Equity Fund.
The new Australia-focused fund is long biased, holding long positions on 30 stocks and short positions on five.
The fund will employ derivative instruments to manage beta risk and protect the fund from falling markets, as well as to generate alpha, or uncorrelated income streams. The fund's exposure to the market will be varied between zero and 70%.
"This is the first time a portfolio in Asia is using equities and derivatives in this way," says Rebecca Jacques, Vertex's head of operations.
CIO Kim Ivey adds, "It's an innovative development for equity portfolio construction, much like equity long/short funds were in Australia when we launched the Relative Value Fund over four years ago."
Jacques says the new fund was partly a response to demand from existing investors for a product that delivered more upside market exposure than Vertex's flagship Relative Value Fund, which is market neutral.
"We expect the new fund to deliver a return of between 14% and 16% per annum, higher than the 12% to 14% return of the relative value fund," she says. "The associated volatility will also be higher however at 8% to 10% for the new fund, compared to 6% for our existing fund," she says.
Vertex's flagship Relative Value Fund is currently closed with A$180 million under management. The fund has returned 55% since its launch in March 2000.
In order to beef up its capabilities on the derivatives side, Vertex has recently added two new team members. Bill De Araujo joins as portfolio manager for the new fund. He has 15 years of experience in equities, derivatives and quantitative research and spent the last 11 years in London with HSBC, UBS and BNP Paribas.
In addition, Wayne Fotheringham, who spent the last five years as an options trader with Fort Hill and BNP, joins the team as an equities and derivatives trader. He is responsible for dealing all of the new fund's investments as well as managing the option related component of the strategy.
The premium fund will have a capacity of A$400 million and was launched with seed money of A$1.5 million from an Australian institutional investor.
The new fund will also see Vertex open up to high net-worth individual investors for the first time, although Jacques still expects institutional investors to make up the bulk of the fund.
"Australian private investors who were unable to invest in RVF will be able to invest in VPEF through a select number of platforms," says Jacques. She adds that Vertex is currently in the process of finalising arrangements with private banks. The fund should be available to private investors through wrap or master platforms by mid August.
Although the fund is mostly targeted at domestic investors, Jacques says an offshore structure for the fund has already been established and will be offered to international investors shortly.