Select Asset Management, local distributor of Gottex market neutral hedge fund-of-funds (HFoFs), has decided to close the leveraged version of the product as Gottex prepares to honour redemption requests in June after a painful 2008.
On June 1, Lausanne-headquartered Gottex will lift a freeze on redemptions that has been in place since November 2008 and offer two options to investors: to stay in the fund and access quarterly rather than monthly liquidity through a lower-fee ‘continuing class’ unit, or to put in a redemption request by choosing the ‘run-off class’ unit and receive capital as liquidity becomes available over time, pro rata.
In Australia, Select offers the Select Gottex Market Neutral Fund, which holds $61.5 million under management, and the two-times leveraged Select Gottex Enhanced Market Neutral Fund, which holds $17.7 million. The boutique will choose to keep the straight market neutral fund open but shut-down the leveraged version.
For the year to March 31, the leveraged fund returned -49.1 per cent and the straight market neutral fund returned -25.8 per cent. The underperfomance was primarily due to a 70 per cent reduction in Gottex’s currency hedge during the wild currency swings of October 2008, which gave little protection to the $A-denominated against the sudden weakness of the domestic currency.
Dominic McCormick, chief investment officer of Select, said the boutique would choose ‘continuing class’ units for both funds, since they gave investors discretion over the timing of redemptions, were subject to a lower management fee and were not distributed in US dollars.
For the unleveraged fund, Select would “leave it up to investors as to whether they stay in the product”. But the manager would aim to terminate the leveraged offering and conduct an orderly wind-up as liquidity became available.
“Our feeling is that the leveraged version doesn’t have a future.”
The boutique’s move to wind-up an outsourced HFoF product follows BT’s decision to close its Global Return Fund, which managed $871 million and drew on Chicago-based Grosvenor as underlying manager, due to liquidity pressures and an inability to meet redemption requests without severely damaging the fund for remianing investors.