Investment Strategy
The Absolute Fund’s investment strategy and methodology is tried and tested. Charles Hovenden has been investing in Hedge Funds since 1993 and managing portfolios consisting entirely of hedge funds using an identical approach since the end of 1998.
Between 1st January 1999 and 30th September 2001 his benchmark 'Portfolio L237' achieved an absolute return of 33.3% net of all fees with a largest monthly loss of 0.3% and standard deviation (volatility) of 2.8%. Over the same period, the FT World Index declined by 7.8% with a biggest monthly loss of 9.1%. 'Portfolio L237' was absorbed into the Absolute Fund at inception to provide a continuous track record.
The Fund’s investment strategy incorporates the following key aspects:
- Based on experience and willingness to learn from past mistakes
- Extensive diversification to reduce risk – target of 40 equally weighted underlying funds with an absolute maximum of 5% in any one fund
- Top-down asset allocation
- Disciplined quantitative and qualitative fund selection
- Allocation to short-bias managers to preserve capital in falling markets
- Avoid allocation to macro or CTA-type funds due to unpredictability of returns
- Avoidance of ‘black box’ or excessively complex strategies
- Avoidance of strategies based on illiquid securities (e.g. Reg D, private equity)
- Preference for smaller funds which can exploit less crowded investment opportunities
- No start-ups unless proven track record
- Limited exposure to funds with lengthy lock-ups or restricted liquidity
Details of the fund's current strategic and geographical breakdown are available on request.
Manager Selection
- Quantitative screening of performance data to identify candidate funds
- Particular focus on biggest monthly losses historically and performance in turbulent markets
- Discrimination against funds which have achieved excessive returns
- Scepticism and particular care exercised with funds where returns appear 'too good to be true'
- Leads to shortlist of funds for further analysis
- Intensive due diligence of short-listed funds
- Intensive and frequent interviews with selected and short-listed managers, backed up by regular telephone contact
- ongoing monitoring of funds to check for style drift
- verification of track records from administrators/prime brokers - Discrimination against managers who offer poor transparency/disclosure or use high levels of leverage
- Preference for medium-sized funds where the Fund’s investment will secure a close manager relationship and regular direct contact
