Multi-manager funds race for domestic market share
Rothschild Australia Asset Management is aiming to launch a A$50 million ($26.28 million) fund of funds by year end, positioning for a domestic market that could grow to as much as A$5 billion in a few years' time.
Seven domestic managers will be managing the Rothschild Total Return Fund, which charges 1% in management fee and 5% in performance fee, with a targeted investor base of high net worth individuals and institutional investors.
Financial advisors with a high-end clientele will form the core of the fund's distribution network. Sydney-based Jobber Group and two Melbourne managers, K2 and Fleet, are on Rothschild's shortlist of preferred managers, with the remainder yet to be finalized.
According to Richard Keary, Rothschild's associate director of alternative investments, the company hopes to introduce the managers into the fund "in sequence" while the offer document will be updated when new managers are added. Minimum investment is A$500,000.
When launched, Rothschild's new fund will join three other multi-manager funds set up in the past few months gearing for a cut of the domestic money.
AM Corp, a local investment group, launched a fund of funds earlier this year, with domestic managers investing exclusively in the Australian market.
Deutsche Bank's fund of funds uses only overseas managers and focuses on the overseas market. Coastal Fund, a seven-year-old hedge fund in Sydney, is also selecting at least 15 overseas managers for its Diversified Performance Fund.
Keary believes there are around 30 hedge fund managers in Australia, managing an estimated amount of A$400 million in total. Most of the managers have between A$10 million and A$20 million under management, with just a couple managing more than $100 million.
Eclectic mix
One common criticism against hedge fund managers in Asia is they lack well-defined strategies, making it hard for institutions to trust them with money. Keary believes his fund can disprove the theory that managers with less-defined strategies are necessarily second-rated.
"Australian managers are more eclectic. That's because the Australian market is not deep and liquid enough for managers who specialize in, for example, merger arbitrage to be doing such deals all the time. For managers who insist on doing pure merger arbitrage there'll be no deals," Keary says.
"Australian managers do have more strategies. But it only becomes more risky if the fund has a unit trust structure which makes it difficult for investors to know what the manager is doing with their money," Keary argues, "But if your investment is placed in a managed account you can set the mandate and limit what the manager can do."
In Australia, requirements for pooled investments offered in a unit trust structure are more stringent than those using managed accounts.
Keary says the fund will use mostly equity-based strategies, including equity derivative, equity/fixed income hybrid, merger arbitrage and traditional equity hedge.