CFS puts Bell on redemptions in hedge FoF shut-down

David Bell and his hedge funds-of-funds team at Colonial First State Global Asset Management (CFS GAM) face uncertain futures after the $200 million business they oversaw was shut down.

A CFS GAM spokesperson said that Bell, who led the hedge funds-of-funds business, and an unspecified number of his team members would manage the redemption of the funds while positions within the business for the others were being “actively pursued”. The decision to close the hedge funds-of-funds, which were built in late 2001, was made public yesterday after ratings agency Standard & Poor’s announced it had withdrawn its three-star ratings of the funds after being informed late last week that they would be closed. In a statement, CFS GAM said the funds did not gain sufficient scale. “Following a recent review of the viability of our products, we have decided to close these funds as they have not achieved the scale necessary to provide the best outcomes possible for investors,” the statement read. Bell assumed responsibility of the funds and the 10-member team from 2004 onward, taking over from Damian Hatfield, who designed the products. The flagship Wholesale Diversified Strategies Fund invested in five underlying fund-of-funds constructed by Bell’s team. These vehicles ran long/short equity, relative value equity, fixed interest, tactical and hedged equity strategies. This structure was ambitious and expensive to run, hedge fund industry sources told I&T News. “The funds were set up in a segmented format which left them with less scale and flexibility to appoint more managers for each strategy,” one source said. Also, the team faced tough competition, such as offshore fund-of-funds managers Quellos (owned by BlackRock), Financial Risk Management, Grosvenor and Mesirow, who have good relationships with domestic asset consultants. “They were going to struggle to develop the same resources,” the source said. From inception the CFS GAM funds were advised by Harcourt, a Swiss alternatives firm, and in October 2007 Bell transferred the portfolio manager of the tactical strategies fund, Kevin Chuah, and another team member to a London office to assess managers from there. The funds-of-funds business invests in 45 funds run by 42 managers, and will submit redemption requests to them from 20 June. Up to 20 per cent of these holdings are illiquid and will not be returned before the end of November 30, 2008. The flagship diversified strategies fund returned 5.81 per cent in the three years to February 29, 2008, compared to the Credit Suisse/Tremont Hedge Fund Index return of 10.39 per cent. However it outperformed its benchmark, a hybrid comprised 80 per cent from the UBS Bank Bill Index, 15 per cent from the MSCI World (hedged) and 5 per cent from the Merrill Lynch High Yield Index (hedged), since inception, posting 7.33 per cent each year against the annual benchmark return of 6.06 per cent. The closure of the funds-of-funds was “;not a good thing for the Australian industry,”; another hedge fund industry source said.