Best FX Hedge Fund: Shortlisted

The Capricorn FXG10 fund is built around a program focused on delivering a risk-adjusted return that is uncorrelated to other investment strategies by trading the major currencies.

Launched in April 2008, but back tested to January 2007, the strategy is run by Mikkel Thorup, chief investing officer and founding partner, and Mike Rasmussen, chief operating officer and partner of Capricon Asset Management.

The higher leveraged strategy targets strong returns, with modest volatility and is long term, fundamental and seeking alpha opportunities benefiting from currency arbitrage and exchange rate differentials. Annualised return for the fund at March 31 2010 was 12.3%.

Capricorn, founded in 1999, now has over 50 years of experience within the investment advisory arena. It iis currently advising on over $250 million in client assets. As a company it trades highly liquid currencies as managed accounts and offshore funds for individual and institutional clients.

In order to provide a source of uncorrelated alpha to professional investors, Capricorn's niche as a currency manager is the discipline inherent within its trading methodology, say the managers.

The program uses currency forwards and has a directional bias in the carry component of the strategy. At the same time risk is tightly controlled via dynamic hedging aimed at reducing the exchange rate risk element of the strategy.

This, the managers say, enables performance to be strong in all market conditions, providing ample liquidity is available.

The strategy begins with the analysis of interest rate differentials as well as the global macro fundamentals of the major currencies, the managers explain.

After the fundamental view is determined on the G10 crosses, leverage is re-balanced on a portfolio level depending upon the monthly cash adjustments within the fund. The individual currency crosses are then entered into the in-house ‘carry' model, used to optimise the allocations of the components within the portfolio.

This optimisation seeks to build a portfolio that is balanced in currency weighting, in order to reduce the exchange rate risk of the components and to isolate the carry benefits of the strategy.

Execution is automated across multiple liquidity providers to access the arbitrage opportunities created by the risk control measures.

Capricorn believes its market advantage comes from being disciplined and specialised, with the discretionary views developed by Mikkel Thorup from over 15 years as a technical analyst, being key to the strategy's competitive edge.

This is set alongside the investment process and methodology which the managers believe also deliver a competitive advantage by focusing on G10 currencies and prime brokering with leading institutions. This later means the strategy is always provided with deep liquidity. By using three unique trading styles within the strategy to seek alpha opportunities the fund also benefits.

The risk controls limit downside losses by using options to target a market neutral positioning.

Fund facts: Capricon FXG10

Full name of fund: Capricorn FXG10
Name of portfolio managers: Mikkel Thorup, Mike Rasmussen
Name of investment/management company: Capricorn Asset Management
Contact information: Wehntalerstrasse 190, Zurich, CH-8105, Switzerland (+41 44 340 0080; www.capricornfx.com)
Launch date: April 1, 2008
Strategy: foreign exchange arbitrage
Assets under management: $14 million (at March 31 2010)
Net cumulative performance 27.36% (since inception) (at March 31 2010)
Annualised return: 12.3% (at March 31 2010)
Annualised volatility: 5.08% (at March 31 2010)
Sharpe ratio: 2.5
Share classes: US dollar, Swiss franc and euro
Administrator: JP Fund Administration
Auditor: BDO Tortuga
Custodian: Deutsche Bank
Prime broker: GTL Trading DMCC
Domicile: Cayman Islands
Management fee: 2%
Performance fee: 20% with high watermark
Minimum investment: $100,000
Lock-in: none
Redemption/liquidity terms: weekly redemptions possible at a fee; monthly redemption without penalties