Best Equity Market Neutral Hedge Fund: Shortlisted

The Pioneer Long/Short European Equity fund successfully took advantage of the huge number of opportunities arising from the dislocation that took place in the markets at the end of 2008. The euro share class returned 16.2% in 2009.

This return, say managers Riccardo Cavo and Andrea Buda, far exceeded the mediocre 1.7% return from its comparable peer group and benchmark HFRI Equity Market Neutral index.

The fund's 2009 return was achieved with a low monthly volatility of 5.1%, less than a fifth of the MSCI Europe Local index volatility of 22.4%.

During 2008-09 the fund was able to protect capital in negative markets and produce positive absolute returns, generating 11.8% over the two-year period compared to a loss of 4.3% for the HFRI Equity Market Neutral index and a negative 27.1% return for the equity market MSCI Europe Local index.

The fund concentrates primarily on listed European equities. The investment objective is to achieve positive absolute returns commensurate with reasonable risk. While predominately market neutral, it can be net long or short at times.

The fund aims to have low correlation with European equity indices by hedging market exposure, and an emphasis on alpha generation rather than beta exposure.

The managers use active fundamental bottom-up stock selection with risk management at all stages in the process. High liquidity and transparency are also paramount, according to the managers.

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

Cavo and Buda are an experienced team with over 30 years of combined experience in equity investing and significant expertise in equity long/short investing. They have managed concentrated portfolios under a variety of market conditions and have honed their investment process to perform in a wide variety of environments.

The portfolio managers are supported by teams focusing on operational, risk management, legal and compliance support.

Risk management and capital preservation lie at the heart of the managers' approach. The fund uses real-time risk management tools to monitor the risk profile and run disciplined value at risk (VaR) and stop loss limits with risk monitored independently by the risk manager.

The company makes information available to investors on a daily basis to ensure a high level of transparency.

The fund's assets under management have remained stable over the last 12 months. Together with the performance of the fund, the company says this retention of AUM is down to good client communication.

The fund provides standard reporting including a monthly factsheet and an annual review. The fund managers are also available for regular conference calls and review meetings. This was particularly important in late 2008 when financial markets were in turmoil. "

Fund facts: Pioneer Long/short European Equity

Full name of fund: Pioneer Long/Short European Equity
Name of portfolio managers: Riccardo Cavo and Andrea Buda
Name of investment/management company: Pioneer Alternative Investment Management
Contact information: 1 Georges Quay Plaza, Georges Quay, Dublin D2, Ireland (+ 353 1 480 2000)
Launch date: 2002
Assets under management: $107 million (at March 1, 2010)
Annualised return: +6.64% (at March 31, 2010)
Annualised volatility: 4.58% (at March 31, 2010)
Sharpe ratio: 0.87
Strategy: market neutral
Share classes: US dollar, euro
Administrator: PNC Global Investment Servicing
Auditor: KPMG
Custodian: PNC Global Investment Servicing
Prime broker: Credit Suisse, Morgan Stanley
Domicile: Ireland
Listing: Irish Stock Exchange
Management fee: 2%
Performance fee: 20% with a high watermark
Minimum investment: $250,000
Redemption/liquidity terms: monthly with 30 days' notice