First NZ Capital is about to roll out a “bespoke” hedge fund-of-funds to its clientbase.
According to the First NZ March ‘Investment Update’, the hedge fund-of-funds, to be launched this May, is modeled on a product offered by Zurich-based Credit Suisse Asset Management Alternative Fund Solutions (AFS).
First NZ has a long-standing business arrangement with Credit Suisse, which at one point was the majority shareholder in the NZ investment banking and stock-broking firm formerly known as Credit Suisse First Boston.
“This allows us to be confident of the track record of the strategies developed by Credit Suisse AFS,” the First NZ report says. “We believe this offering is unique in New Zealand, in terms of both the precise objectives which we have defined for the fund, and the close working relationship we enjoy with the funds managers at Credit Suisse.”
Greg Fleming, First NZ wealth management strategist, told Investment News NZ (IN NZ) the product would target an annual return of the “cash rate plus 6-8 per cent at an annualised volatility level around 6 per cent” with an expected management expense ratio of 1 per cent.
“We believe the ‘bespoke’ characteristics of our offering differentiate it on the grounds of the diversification and active management of the underlying funds (which are chosen from a larger fund universe and reviewed regularly); the transparency of the structure due to our close relationship with the Zurich-based Credit Suisse team; and, the high level of due diligence and fund selection process quality which is the hallmark of CS Alternative Fund Solutions,” Fleming said.
He said the hedge fund product would typically invest in about 15 underlying funds covering strategies that include: long-short equity; merger arbitrage; distressed debt, and; emerging markets.
As well, Fleming said the First NZ hedge fund would be able to engage in tactical trading strategies such as “global macro and managed futures” in addition to relative value plays like fixed income arbitrage, convertible bond arbitrage and equity market neutral investments.
“The fund is designed to blend well with a traditional multi asset class portfolio and deliver its returns hedged into NZ dollars to remove exchange rate risk,” he said.
Fleming said the Credit Suisse-labeled hedge fund product would be offered to wholesale and retail investors as an Australian unit trust under the trans-Tasman Mutual Recognition regime.
However, First NZ would not have to obtain a managed investment scheme (MIS) licence to offer the new product, he said.
The First NZ March investment report says hedge fund-of-funds can offer “invaluable diversification benefits” in the current investment climate.
“At present, investors are challenged to find effective capital-preservation vehicles, with equities remaining volatile and bond yields being pushed ever-lower by the renewed global risk aversion,” the First NZ update says.
The report says the hedge fund sector has developed considerably since suffering some “reputational damage” in the wake of the GFC with fund structures, regulation and investor knowledge all improving post 2008.
“The last five years have witnessed the development and industry acceptance of investment terms and transparency levels which are much more favorable to investors,” the First NZ document says.