Best Ucits III-Compliant Product: Winner

Ucits III fund Pioneer Absolute Return Equity combines the investment experience and skills of Pioneer Alternative Investment Management and Luxembourg-based Structured Invest.

The fund accesses the performance of an absolute return long/short equity strategy focusing on the European region, managed by Pioneer's Riccardo Cavo and Andrea Buda, and the structuring expertise of Silvia Mayers and Stefan Lieser of the management company Structured Invest.

Pioneer launched the Absolute Return Equity Fund in November 2007, as one of the first Ucits III hedge funds to come to market.

Its structure has enabled Pioneer to offer a wider range of investors access to an absolute return approach by capturing the returns of an underlying European equity long/short strategy through a total return swap.

Structured Invest, as the management company, has expertise in structuring products in fund wrappers.

In their investment strategy, the managers use active fundamental bottom-up stock selection, with risk management at all stages in the process. High liquidity and transparency are  paramount, they say.

By being predominately market neutral but with the flexibility to be net long or net short at times, the fund is able to focus on capital preservation and generate consistent absolute returns with minimal correlation to equity markets.

The fund gains exposure to the performance of an absolute return strategy, managed by the Pioneer team, through an over the counter (OTC) total return swap.

Ucits III regulations do not permit Pioneer Absolute Return Equity to enter into physical short positions. So the fund imports Pioneer Alternative Investment's absolute return strategy synthetically. In this way the fund achieves the same economic result through the swap as it would through the outright purchase/sale of the long/short positions.

The strategy uses fundamental bottom-up stock selection with no bias to value or growth or the market capitalisation of companies. It simultaneously takes long positions in undervalued equities and short positions in overvalued equities in order to generate positive returns and keep a low correlation to equity markets.

The fund also uses derivatives for defensive efficient portfolio management and to achieve the investment objective. The aim is to generate alpha from both side of the portfolio. Short positions are not just a hedge.

The strategy is divided into 11 macro or sector baskets. Risk is allocated in order to achieve the appropriate level of sector diversification. An additional macro sector contains all the derivatives positions for hedging purposes.

Cavo and Buda are an experienced team with over 30 years in equity investing and significant expertise in equity long/short investing. They have managed concentrated portfolios under a variety of market conditions. The portfolio managers are supported by teams focusing on operational, risk management, legal and compliance.

The fund demonstrated its ability to preserve capital in the negative market environment of 2008 with a minimal drawdown. In 2009 it produced consistent absolute returns with a double-digit return achieved with a conservative level of gross exposure and low net exposure.

Fund facts: Pioneer Absolute Return Equity

Full name of fund: Pioneer Absolute Return Equity
Name of portfolio manager: Riccardo Cavo and Andrea Buda (Pioneer); Silvia Mayers and Stefan Lieser (Structured Invest)
Name of investment/management company: Pioneer Alternative Investment Management/ Structured Invest
Contact information: 1 Georges Quay Plaza, Georges Quay, Dublin D2, Ireland (+353 1 480 2000)
Strategy: long/short equity
Launch date: 2007
Assets under management: $442 million (at March 30, 2010)
Annualised return: +4.70% (US dollar), +4.23% (euro) (at March 30, 2010)
Annualised volatility: 5.05% (US dollar), 4.75% (euro) (at March 30, 2010)
Sharpe ratio: 0.53 (US dollar), 0.34 (euro)
Share classes: US dollar, euro
Administrator: Brown Brothers Harriman
Auditor: KPMG
Custodian: Brown Brothers Harriman
Prime broker: Credit Suisse
Domicile: Luxembourg
Management fee: 1.5% (I Class); 2.2% (A Class); administration fee for both I and A Classes up to 0.27%. No performance fee at the fund level
Weekly performance fee: 20% of the net capital increase applied at the strategy level with a high water mark
Minimum investment: $500,000 (I Class); $5,000 (A Class)
Redemption/liquidity terms: a 10% gate on redemptions might be applied although it is not currently applied; exit charge of up to 2% not currently applied.