Hedge funds, once the domain of the privileged few, are quickly becoming important investments to a wide variety of portfolios. They carry out a carefully defined investment strategy based on a specific investment thesis and are tailored to match strategy with an investor’s risk/reward appetites. What distinguishes the typical hedge fund from its standard mutual fund counterpart is the hedge fund’s ability to trade against the market through short sales (whether a single company or a market component). Some hedge funds may be based on public equity or bond markets while others will invest off of other financial instruments. In any case, the ability to be a long and a short investor in the same fund creates the building blocks for the development of highly targeted strategies.
Focus on Emerging Managers
One broadly appealing approach to this asset class is to seek outperformance by selecting emerging hedge fund managers rather than their much larger, better known competitors. Statistical analyses have demonstrated that investments in these younger, hungrier, more nimble managers yield superior performance with lower volatility, both in the longer and shorter term.
Kensington Hedge Fund 1
Kensington has developed a unique vehicle for the market to provide investors with access to the best emerging Canadian hedge fund managers. Kensington Hedge Fund 1 comprises a multi-strategy/multi-manager fund of emerging Canadian hedge fund managers in a single comprehensively diversified portfolio. The goal of the Fund is to provide investors with strong performance with greatly reduced risk and low correlation to public equities.
The hedge fund team at Kensington is led by Eamonn McConnell with a long background in financial strategies and the firms that trade them. Building on Kensington’s long history of strong capabilities of analytical due diligence on fund managers, the hedge fund team is adept at separating the best from the merely good Canadian managers.
The more than three years of performance of the Kensington Hedge Fund 1 has been strong with returns targeting 0.5-1% per month with low volatility (1/3rd of the TSX Index), low correlations to public markets and excellent reward to risk figures (Sharpe ratio). The Fund has 13 managers in the portfolio currently providing investors with a diversified stream of returns. The rigorous focus of a diversified pool of emerging managers, no stacking of fees and monthly liquidity provides investors with an interesting alternative to traditional assets.