Winner: Most innovative fund of hedge funds

When Liechtenstein-based Salus Alpha Capital opened the Salus Alpha Event Driven fund in February of 2008, the asset manager judged it was the right time for a fund of hedge funds (FoHF) to take advantage of the multitude of corporate developments taking place such as mergers and acquisitions, spin-offs and reverse mergers, restructurings, turnarounds and Chapter 11 and bankruptcy proceedings in the US.

While some may question the timing, particularly as the financial crisis hit only a few months later, the success of Salus Alpha Event Driven has been clear.

“Hedge fund management is not just a science, it is an art,” says fund manager Oliver Prock. “The best managers have been passionate investors and have followed certain markets for years. They often think ‘out of the box’ and make investment decisions contrary to the mainstream market opinion. To be a good manager you have to have common sense to identify optimal investment opportunities as well as to understand when assumptions were wrong to be able to cut your losses.”

The fund is what is known as an "enhanced index tracker" and targets the return of the EDX - Event Driven Index listed on the Vienna Stock Exchange. The EDX is a multi manager event driven index whose managers employ equities, bonds and derivatives to invest in the sub-strategies of merger arbitrage, special situations and distressed securities.

The fund is designed to offer immunity against the unwanted price volatility of traditional portfolios, according to the fund management company. It believes good manager selection is key along with catching red flag signals in time to curb or delete underlying managers from the portfolio.

“Funds working with indemnification for wrong doing, lacking in transparency or operating with gates or lock ups always sets off the warning bells,” explains Prock. “We always scrutinise models by one simple question to the hedge fund managers: Are you able to offer the strategy as a managed account? A ‘no’ always meant that there were problems. This prevented and will prevent our company at all times from investing into ‘illusion alpha’."

The fund comes under the care of Prock, who is also chief investment officer of Swiss alternative investment asset manager of Salus Alpha which has around $1 billion of total assets under management (AUM). He has over 14 years of professional investment experience and is also the president of the VAI, the alternative investment association of Austria.

Unusually for an event driven FoHF, Salus Alpha Event Driven is also Ucits III-compliant. Like all the asset manager’s funds it offers daily liquidity. The manager says the FoHF is currently the only Ucits-compliant investment vehicle that offers exposure to a multi manager event driven portfolio with daily liquidity.

It offers a remarkably low minimum investment of €5,000 ($6,887.05) with minimum increments of just €100 ($137.74). So far, the fund has attracted €30 million ($41.32 million) of investments from clients. The asset manager says these investors are largely institutional (95%) with just 5% made up of high net worth individuals.

Geographically, the investor base is global with a strong focus on Europe.

There is a single management fee of 1.25%.

The manager reckons the fund has a maximum capacity of $1 billion. It hopes to reach this total in two to three years, after which the fund will be closed to new investment.

Günther Schneider, Salus Alpha Capital

Fund facts

Full name of fund: Salus Alpha Event Driven
Name of investment/management company: Salus Alpha Capital
Portfolio manager: Oliver Prock
Contact: Salus Alpha Capital, Wegacker 42, 9493 Mauren, Liechtenstein
Launch date: February 29, 2008
Assets under management: €30 million
Annualised return: 6.41% (at November 5, 2010)
Annualised volatility: 6.01% (at November 5, 2010)
Sharpe ratio: 1.07%
Strategy: event driven
Administrator: Erste Sparinvest KAG
Auditor: Ernst& Young
Custodian: Erste Group Bank
Prime Broker: Erste Group Bank
Domicile: Austria
Management fee: 1.25%
Performance fee: none
Minimum investment: €5,000
Lock-in/up: none
Redemption period/liquidity terms: daily