A Novel Partnership: Approach to Hedge Funds

HEDGE FUNDS
A Novel Partnership
Approach to Hedge Funds
Innovation in investment is nothing new to Société
Internationale de Finance (SIF). Over 30 years ago,
this family office led the way in exploring and sucBy Dr. Rolf Ehlers
Chief Investment Officer
Société Internationale de Finance
Zurich
and Dr. Peter Moertl
Managing Director
Société Internationale de Finance
Zurich
Today, Société Internationale de Finance
again leads the way by offering hedge
fund investment opportunities on a
pari passu basis, i.e. letting investors
invest alongside SIF and its founding
family – thus making its investment
partners an integral part and, whatever
the asset allocation, aligning the interests with its investors at all times.
A family approach to investing
Société Internationale de Finance is
heir to an industrial culture with its
roots in a family business, founded in
cessfully exploiting novel opportunities for protecting the founders’ wealth and to help it grow exponentially using hedge funds and private equity.
the late 19th century. By 1932 the Bemberg family, an international brewery
and beverage dynasty, decided to have
its global financial affairs managed
from the commercial security of a professionally-run family office based in
Switzerland.
Generations after its founding, SIF
– regulated by the Swiss Federal Banking Commission – now controls investments in the billions of dollars.
A growing proportion of these investments are managed on behalf of a
select group of other families, family
offices and sophisticated investors.
They have come to SIF for advanced
fiscal expertise, entrepreneurial flair
and total discretion. Above all, they are
comfortable with SIF’s guiding principle: a principal or pari passu investment approach.
Value added of hedge funds
within an asset allocation
Adding hedge funds to a traditional
portfolio of bonds and equities can significantly improve the risk-adjusted
return of a portfolio and provide absolute returns as well as enhance portfolio diversification.
A rigorous due diligence
and monitoring process
All academic and empiric benefits of
hedge funds aside, experience shows
that a rigorous proprietary due diligence
and monitoring process is crucial for
long-term success and performance.
Some pointers based on decades of
successful hedge fund investing:
. Seek diversification across different
Dr. Rolf Ehlers
56
.
strategies (e.g. distressed debt,
event driven, long / short).
Funds of funds versus single invest-
Dr. Peter Moertl
.
.
.
.
ments further diversify your investment.
Partner with investors who have
exclusive access to top performers.
Bottom-up research by trusted inhouse experts, or even better, provided by top international advisors.
Top-down research and final
allocation among the various hedge
fund managers should be driven by
in-house investment professionals.
It involves meetings with senior
partners of the targeted teams, a
detailed portfolio review, reference
checks and a thorough review of the
fund investment strategy.
Ongoing monitoring of chosen
hedge fund managers by your team
of investment professionals.
Creating a personalised portfolio
of hedge funds
Evaluating prospective managers requires to screen the four “Ps”:
PRIVATE
4 /2004
HEDGE FUNDS
SIF Advantage – SIF Conservative US$. Strategy: Convertible Arbitrage
150
Total assets: US$ 169 million
140
130
Net total return
(since April 2000): 41.4%
120
Correlation (stocks): 0.4
110
Correlation (bonds): 0.3
100
90
80
70
SIF Conservative
CSFB / Tremont Hedge Fund Index
Jul 04
Mar 04
Nov 03
Jul 03
Mar 03
Nov 02
Jul 02
Mar 02
Nov 01
Jul 01
Mar 01
Nov 00
Jul 00
50
Mar 00
60
S&P 500
Average annual performance April 2000 to July 2004: 8.3%
Average standard deviation April 2000 to July 2004: 3.3%
Sources: SIF / Bloomberg
. People (education, experience,
. Process (how the investment stratintegrity, turnover)
egy is implemented)
. Philosophy (consistent strategy, risk . Performance (solid, risk-adjusted
management)
We then apply a three-step approach for creating personalised hedge
fund portfolios:
Step one defines the risk and return
track record)
SIF Advantage – SIF Aggressive US$. Strategy: Long / Short
Total assets: US$ 140 million
Net total return
(since April 2000): 37%
Correlation (stocks): 0.2
Correlation (bonds): 0.2
SIF Aggressive
CSFB / Tremont Hedge Fund Index
Average annual performance April 2000 to July 2004: 7.5%
Average standard deviation April 2000 to July 2004: 6.1%
4 /2004
PRIVATE
Jul 04
Mar 04
Nov 03
Jul 03
Mar 03
Nov 02
Jul 02
Mar 02
Nov 01
Jul 01
Mar 01
Nov 00
Jul 00
Mar 00
40
S&P 500
Sources: SIF / Bloomberg
57
HEDGE FUNDS
Ein innovativer, partnerschaftlicher Ansatz für Hedge Funds
Die Ursprünge der Société Internationale de Finance
(SIF) reichen zurück bis ins 19. Jahrhundert. Damals
gründete die Bemberg-Familie ein Familienunternehmen, das sich in der Folge zu einer internationalen
Brauerei- und Getränkedynastie entwickelte. 1932 entschied sich die Familie, ihre weltweiten Finanzaktivitäten im Rahmen eines professionellen Family Office aus
der sicheren Schweiz heraus verwalten zu lassen. Heute
verwaltet die SIF Vermögen in Milliardenhöhe. Dazu gehören zunehmend auch Investments anderer Familien
und Family Offices sowie sophistizierter Privatanleger.
Zu den Gebieten, auf denen sich die SIF ein ganz
spezielles Know-how erarbeitet hat, gehören die Hedge
Funds. Über die Jahrzehnte haben sich dabei sechs Erfolgsfaktoren herauskristallisiert:
Diversifikation über verschiedene Strategien
Zusatzdiversifikation mittels Funds of Funds
Zusammenarbeit mit Partnern, die exklusiven Zugang
zu top Hedge-Fund-Managern haben
Bottom-up-Research durch Inhouse-Experten oder,
noch besser, durch top internationale Berater
Top-down-Research und definitive Asset Allocation
durch Inhouse-Anlageprofis
Ständiges Monitoring der ausgewählten Hedge-FundManager
.
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.
.
.
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goals of our investors. Typically those
stretch from bond-type volatilities to
expected returns in excess of equity
with below equity-type volatility.
Step two is the selection of hedge
fund strategies. The dispersion of returns among various hedge fund strategies is significant. Through an appro-
Die Evaluation potentieller Hedge-Fund-Manager
erfordert die Kontrolle und Einschätzung der vier Ps –
People (Ausbildung, Erfahrung, Integrität, Fluktuation),
Philosophy (Konsistenz in der Strategie, Risikomanagement), Process (Umsetzung der Anlagestrategie), Performance (solider, risikoadjustierter Track Record).
Darauf folgt ein dreistufiger Ansatz für die Zusammenstellung der individuellen Hedge-Fund-Portfolios:
Zuerst werden die Risiko- und Ertragsziele des jeweiligen Investors definiert; diese reichen von Volatilitäten
im Obligationenbereich bis zu Ertragserwartungen, die
über Aktienrenditen hinausgehen, aber mit geringeren
Volatilitäten behaftet sind. In einem zweiten Schritt werden die besten Hedge-Fund-Strategien ausgewählt; eine
zweckmässige Mischung von Strategien sorgt dabei für
eine Risikoreduktion des Gesamtportfolios. In einem
letzten Schritt erfolgt schliesslich die effektive HedgeFund-Selektion aufgrund eines rigorosen Top-down- und
Bottom-up-Ansatzes durch die internen Spezialisten.
Kreativität ist unerlässlich zur Wertsteigerung eines
Portfolios. Zur Sicherung des Vermögens muss sich
diese Kreativität aber immer in den Schranken einer
rigorosen Due Diligence bewegen. Genau diese Balance
strebt die Société Internationale de Finance für ihre
Gründerfamilie und ausgewählte Investmentpartner an.
priate mix of hedge fund strategies, the
risk of a portfolio of hedge funds tends
to fall, reflecting the low correlation
between returns of individual hedge
fund strategies. The level of excess returns (“alpha”) produced by hedge
fund portfolios reflects the average
success of their investment strategies.
Société Internationale de Finance . . .
. Delivers personalised asset management and wealth planning on a pari
passu basis.
. Shares a passion to succeed and is a leader in alternative investments,
risk management, wealth preservation and growth.
. Partners with international family offices, family businesses and
sophisticated investors as their “trusted advisor”.
. Offers competitive returns combined with superior client service.
. Attracts top talent and develops new solutions dedicated to profit and
growth for every investment partner.
58
Step three is the fund selection
based on a rigorous top-down and bottom-up approach of our in-house experts and exclusive relationships to top
investment advisors in the market.
Our distinct fund of hedge fund
portfolios are designed to capture
above-average returns through careful
manager selection, while minimizing
risk. Furthermore we have access to
some of the best “closed” fund managers that may be unavailable to new
investors in the market, due to our long
standing investment record in the industry.
A pioneer in alternative investments
A creative investment approach is essential for an investor’s fortune to
grow. But to protect that fortune, you
have to apply creativity within a rigorous framework of due diligence. SIF
strives to get this balance right for its
founding family and select investment
partners.
.
PRIVATE
4 /2004