Best Sub-$50 Million Hedge Fund: Shortlisted

Targeting 50% annualised returns a year, the Dacharan High Exposure Fund "is very much that, high exposure; and it does what it says on the tin", says managing partner David Beddington. The fund has achieved 55% annualised returns to the end of March 2010.

The fund uses a systematic approach to trading G10 foreign exchange spot and forward markets. Launched in May 2008 the fund has produced net cumulative performance since inception of 130% with annualised volatility of 32%.

"We have focused on trading foreign exchange because we feel for a number of reasons it is the most attractive asset class in which to trade high frequency strategies. Likewise, we trade in G10 because of the liquidity," says Beddington.

The fund makes around 500 trades a day using a proprietary system receiving price feeds from a variety of bank sources, which fully automates the opportunity selection and execution of trades.

"We trade off the bid and offer spread with a few additional execution features that help us acquire the best price," Beddington explains. "Execution and timing are to some extent everything in the strategies we run."

Dacharan Capital was established in early 2008 by four partners who had been working together at the London investment manager Shooter Fund Management. Beddington, Ari Andricopoulos, Charles Phan and Antti Aitio have been "a stable team" working together for around six years.

Alongside the systematic system the managers use those years of experience in running money together in taking a discretionary view of the portfolios, in terms of the weighting, prioritising and market interpretation.

"There isn't the huge demarcation line between systematic trading and discretionary that many people think. Everyone has a certain idea of how the world works, how markets work, and then they apply that through some sort of methodology or process," says Beddington.

"We have chosen to be disciplined and systematic about ours, which makes it very repeatable and scalable," he adds

Strategy development is done at the discretionary level, he says, as is the risk management process in terms of risk reduction.

Having two years of stellar performance as Dacharan Capital under their belts, Beddington articulates the company's ambitions. "At this stage our ambition is to maintain our performance," says Beddington.

"We don't view ourselves as trying to create a multi-billion dollar asset management company. We want to have a relatively modest sized fund - we tend to hard close with a relatively modest amount of money and then focus on continuing to generate the returns we have historically," he states.

The four partners have all their liquid net worth invested in the fund, Beddington says, "so our interests are very much aligned with those of our clients. In some ways we view ourselves as a proprietary trading fund that has a number of external investors with which we can work closely."

Fund facts: Dacharan Capital High Exposure Fund

Full name of fund: Dacharan Capital High Exposure Fund
Name of portfolio manager: Dacharan Capital
Name of investment/management company: Dacharan Capital
Contact information: 1 Cornhill, London EC3V 3ND (+44 (0)203 178 6580)
Launch date: 2008
Assets under management: $40 million (at March 31, 2010)
Net cumulative performance since inception: 130% (at March 31, 2010)
Annualised return: 55% (at March 31, 2010)
Annualised volatility: 32% (at March 31, 2010)
Sharpe ratio: 1.6
Strategy: high frequency foreign exchange
Share classes: US dollar, sterling, euro
Administrator: Equinoxe AIS
Auditor: Grant Thornton
Custodian: HSBC
Prime broker: Newedge, Deutsche Bank
Domicile: Bermuda
Management fee: 1%
Performance fee: 30%
Minimum investment: $100,000
Redemption/liquidity terms: monthly dealing with seven days' notice