Friday, 23 July 2010

FRM’s flagship fund of funds showing good relative performance

Financial Risk Management’s long term record as a fund of funds manager is reasonable. The only significant blip on the record was the one shared by most funds of funds, that is, a big loss in 2008. Like all serious funds of funds the firm makes a large effort in risk measurement and understanding of the risks taken on behalf of their investors. There has been a pay-off for  that effort since the end of 2008 as the FRM flagship fund, the Absolute Alpha Diversified Fund, has out-performed the typical multi-manager hedge fund product last year and this.   
The relative performance has been good in the year to date. The whole of the monthly/annual track record is shown below.

Despite losing months in May and June, FRM’s AA Diversified Fund is still up for the first half of 2010. It should be borne in mind that the Diversified Fund is over $2bn, so degrees of freedom are less than those of smaller funds. For comparison, the Barclay Fund of Funds Index is down 1.4% and the HFN Fund of Funds Aggregate Index is down 1.27% over the same period.  It is noteworthy that FRM’s multi-manager fund lost only 1.54% in May, a month in which single manager hedge fund indices were down over 2 ½ %. So tail risk was curtailed for the fund of funds as an investor would hope for a mature single manager hedge fund.
This year the Fund will have benefitted from exposure to statistical arbitrage managers as volatility went up, and more significantly from the allocations to macro/directional managers (with the exception of a Top 10 allocation to Moore Global Investments). Relative performance will also have been helped by the portfolio level hedges applied by FRM which are used to limit the equity beta exposure of the fund-of-funds.

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