First Quadrant opens popular hedging strategy to retail


(Pictured: Jeppe Ladekarl)

Affiliated Managers Group is preparing to launch an Australian trust on behalf of its affiliate First Quadrant, called the Global Alternative Return Fund, which comes off the back of increasing demand for the strategy and some major institutional wins in the US.

The strategy, recently endorsed by the State of Connecticut which awarded the Pasadena-based First Quadrant a US$6 billion mandate, is a global macro strategy which exclusively trades long/short currencies, largely for efficiency reasons.

It is lowly correlated with the major asset classes, providing a hedge against them at a reasonable cost and with better liquidity than most hedge funds. The target risk-adjusted return is cash plus 60bps. Hypothetical total return for an Australian investor in the 12 months to March was a healthy 11.4 per cent and the three-year annualized return was 6.7 per cent.

First Quadrant is well known to Australian institutional investors, having visited reasonably often with its early TAA strategies since the 1990s. The strategy now to be offered to all Australian investors was developed in 2006 and now makes up about half of First Quadrant’s US$18 billion globally in its TAA basket.

With a minimum investment of $25,000, the fund is the first product for marketer Cameron Dickman, who was recruited by AMG last year to concentrate on the smaller investor world via platforms.

Promoting the fund in advance last week was Pasadena-based Jeppe Ladekarl, First Quadrant’s director of research. He said that the demand in the US was such that the firm would also launch soon a Dublin-based UCITS fund. As a sub-advisor to US retail manager John Hancock, First Quadrant has gathered up an unexpected US$1.9 billion into an identical fund.

Ladekarl said that the Australian trust could also invest in the UCITS fund, if investors wanted two layers of regulatory protection, but that was not the intention at this stage.

“It’s an alternative returns stream but not in terms of liquidity. We are not going to play around with collateral to enhance returns… The drivers are fundamental. They are a combination of macro flow and behavioural biases. It also has a value element as we do believe that currencies revert. We try to get ahead of things, such as carry trades. Currencies present fertile ground to eke out alpha.”

He said investors were worried about tail risk, especially since the global financial crisis and were looking for hedges at a lower cost than other strategies, such as CTA momentum strategies which had not performed very well in the past couple of years.

The RE for the Australian trust is Perpetual. The custodian is RBC.