New fund of hedge funds takes off in Singapore

Conrad and Ottess, a Singapore-based private asset management company, will shortly launch Excess 10, a multi-strategy fund of hedge funds. The fund, due to launch March 18, aims to deliver a consistent return in excess of 10% per annum. Conrad and Ottess was previously the family office of a Spanish family that made its fortune in casinos.

Singapore-based vice president Kurt Wee says the business was commercialized two years ago and began servicing outside institutional and high net-worth investors. The company is headquartered and incorporated in the British Virgin Islands, and the Singapore branch office, which has been in existence for the last five years, services onshore and offshore clients in Asia and the Middle East.

Wee says the fund of hedge funds has been in preparation for the last 18 months. "We have spent a lot of time monitoring and observing which hedge fund managers we feel comfortable including in our portfolio, using our internal expertise, independent third-party investment research and due diligence agencies," he says. "We're looking for strategies that are resilient and pay particular attention to periods like 1998 and 2004 to scrutinize how managers perform during tougher market conditions."

The fund invests in a diversified group of around 15-25 managers, and will launch with a 60% bias towards Asian and other emerging-market managers. "Fund of hedge fund strategies have not been providing attractive returns in recent years. The emerging market bias in our portfolio will help to boost returns," says Wee.

He notes, however: "Asian markets are not that liquid and even a very skilled manager could face serious limitations. Asian managers tend to display a higher volatility and less consistent performance. They may have a good run for a few years, followed by down periods. In the US markets, hedge fund strategies tend to be more alpha-driven."

Wee says the fund will launch with a 40-50% allocation to hedge funds focused on US and European markets to keep its risk profile stable. While there is no specific strategy allocation in the portfolio, Wee says that the fund seeks to maintain a 30-40% weighting towards low volatility, consistently performing funds and another 30-40% towards higher-return, more volatile managers.

"The rest will be allocated to individual managers we feel comfortable with, and whose strategy we feel will perform in coming years," says Wee.

Pro forma results for the Excess 10 Fund from January 2002 to November 2004 show it returning an annualized 13.6% (net of fees), with a standard deviation of 2.8%. The fund will launch with at least $10 million in seed capital from its Spanish family backers.

Wee says the group will build its own distribution and he expects to see most interest in the fund from Asian high-net worth investors and family offices. He says he is currently in talks with the few groups and that there is potential for the fund to launch with substantially larger assets.

Wee believes the fund will have a capacity of about $1.5 billion. He expects to make an initial allocation of up to $250 million.