Highly commended: Best performing diversified fund of hedge funds over 10 years and Hedge Funds Review fund of hedge funds of the decade

2009

Highly commended: Best performing diversified fund of hedge funds over 10 years

Rothschild Blackpoint has a long history of investing in hedge funds. Nemrod, the flagship fund, has an audited track record going back 16 years and has been managed by the same team since inception.

The cumulative experience, coupled with a deep understanding of the underlying strategies of hedge fund managers, has helped deliver average annual returns of 8.15%, with an average annualised volatility of 6.45% for the Nemrod Diversified Holdings fund of hedge funds (FoHF).

The investor base for the fund is roughly 30% private client, 10% family office, 30% institutions and 30% Rothschild Blackpoint’s own money.

Nemrod Diversified Holdings is a conservative fund. As its name suggests the fund looks to maintain a well spread and balanced portfolio. The fund takes a long-term view of three years and above. It invests in commodity trading advisers (CTAs) and global macro funds, seen as a fundamental driver of the fund’s success.

Since inception the fund has delivered consistent returns. In 1998 as stock markets crashed and FoHFs lost money, Nemrod generated positive returns. Similarly, in 2007 it remained in positive territory because of its timely avoidance of leveraged credit funds.

Key to Nemrod's success is its policy of investing only in managers who can show experience of investing long as well as short. For example, in 2008 a lot of funds had a five-year track record but had never been through a bear market. Nemrod had invested in underlying managers with substantial experience of multiple economic cycles.

During its 17 years of continuous hedge fund investing, Rothschild Blackpoint reckons it has met with literally thousands of hedge fund managers, in many cases numerous times. This has helped the management company put together a knowledge library that is impressive in its depth and scope.

When first selecting managers Rothschild Blackpoint uses a bottom-up selection process. About 25% of the portfolio managers’ time is spent on quantitative analysis and 75% on qualitative analysis. 

"A generalist FoHF remains a very attractive investment for smaller clients or for clients who have a smaller part of their portfolio allocated to hedge funds and who are seeking diversification,” remarks Pierre de Croisset, fund manager of Nemrod.

“Clients who are already familiar with hedge funds or have a large allocation may wish to isolate or to mitigate specific risk factors and in this case a specialist FoHF may be suitable,” he says.

While quantitative data can determine the suitability of the return characteristics of the fund, how it fits into the overall portfolio and ranks versus its peers is also important. Only with qualitative analysis can the quality of returns be assessed as well as the quality of the management and organisation of the portfolio manager.

All selected underlying managers are monitored on a monthly basis. They each also undergo a comprehensive annual review, a systematic review of any significant investing or management changes and an on-site manager visit.

Potential triggers for removal from the fund are rigorous as selection criteria. Nemrod will reconsider its allocation to a manager in the event of a drop-off in performance, a change in a manager's investment strategy, style or process, a change in organisation at fund level or even just changes in the opportunity environment that could mean money would be better allocated elsewhere.

The fund invests across four main strategies: arbitrage and event driven, global macro, equity and credit long/short and systematic trading. It does not have any pre-established concentration limitations or guidelines. Geographically the fund is diverse with 23.6% currently invested in emerging markets, 18.1% globally, 16.9% in Asia, 29.9% in the US and 11.5% in Europe.

Nemrod, listed in Luxembourg, charges a 2% management fee. Minimum investment is $200,000. Liquidity is monthly with 20 days’ notice.

Fund facts

Full name of fund: Nemrod Diversified Holdings
Name of investment/management company: Rothschild Blackpoint
Contact: Carol Paterson Smith, 1 King William Street, London EC4N 7AR (+44 (0) 207 280 5281; carol.paterson-smith@rothschild.com)
Launch date: January 1994
Strategy: multi-strategy(arbitrage, equtiy and credit long/short, systematic trading)
Assets under management: $577 million
Annualised return: 8.15%
Annualised volatility: 6.45%
Share classes: US dollar, euro, sterling, yen
Administrator: HSBC Securities Services Guernsey
Auditor: KPMG Channel Islands
Custodian: HSBC Securities Services Guernsey
Domicile: Guernsey
Listing: Luxembourg Stock Exchange
Management fee: 2%
Performance fee: none
Minimum investment: $200 000, €200,000, £100,000, ¥1 billion
Lock-in/up: none
Redemption period: monthly with 20 days' notice