Highly commended: Best sub-$100 million fund of hedge funds

Launched in April 2009, the Matrix Credit Opportunities fund of hedge funds (FoHF) has coped well with demanding market conditions. It generated annualised returns for of 6.65% with volatility of just 2.52% in 2009 and has made positive returns in 76% of all months since it opened under the aegis of chief investment officer Stuart Ratcliff.

Matrix Group says the fund’s objective is to achieve consistently high annual returns with low volatility and low correlation to broad equity indexes over the market cycle.

The multi-strategy Bermuda-domiciled fund is listed on the Irish Stock Exchange. It invests in a diversified portfolio of 15 to 20 alternative funds, spreading its allocation across a broad range of strategy areas including credit, event driven, macro and market neutral. The fund aims to diversify though varying correlation of strategies, managers and underlying positions. It maintains a conservative strategy, targeting returns between 8% and 10% a year.

“The biggest challenge for us has been to capture the tremendous opportunity created in 2008, whilst being mindful of the serious lessons that needed to be learnt from that period,” explains Ratcliff. “The Matrix Credit Opportunity Fund is a very ‘clean’ fund with no legacy issues and therefore we placed a very high premium on liquidity when it came to selecting strategies and managers to invest in.”

The fund’s strategy is a great diversifier for an investor, according to Matrix, because the mix of managers targets a different set of underlying funds than many multi-manager platforms. Current allocation is weighted heavily towards macro/directional and event driven single manager funds. These each account for around a third of all fund allocations. Underlying geographic exposure is currently weighted to the US with 42.5% followed by Europe (21.4%) and emerging markets (19.9%).

“The fund fits well into our clients’ portfolios as they generally have a fair amount of equity exposure elsewhere and cannot access directly a lot of the specific return streams which the fund is exposed to, such as distressed debt,” notes Ratcliff.

He is happy to invest in small or niche managers. “We have a big advantage over the large FoHF groups in that we don’t have size as a criteria, as long as the AUM can support the business we can invest,” he explains “We really like the portfolio manager to talk in great detail about their positions and for those positions to be uncrowded.”

Controlling volatility is a key focus. Matrix expects credit will continue to out-perform equities, producing better absolute returns and lower volatility. Betting on continuing volatility coupled with mostly directionless markets over the coming months, the fund has cut exposure to large funds which have found it difficult to navigate quickly enough as sentiment changes. Instead it has been allocating to smaller more nimble funds that can buy or sell holdings without a large market impact.

With an annualised volatility of just 2.5% since inception, the fund has been resilient to market volatility, according to Ratcliff.

“The key to this is a combination of manager selection plus portfolio construction. Although at first glance 14 managers may appear concentrated, as they are all doing something different, investors get access to a very diversified set of trades and exposures within the credit markets, this helps reduce the volatility,” concludes Ratcliff.

Fund facts

Full name of fund: Matrix Credit Opportunities Fund
Name of investment/management company: Matrix Money Management
Portfolio managers: Stuart Ratcliff, chief investment officer
Contact: Matrix sales (+44 (0)20 3206 7222; sales@matrixgroup.co.uk)
Launch date: March 2, 2009
Assets under management: $21.35 million
Annualised return: 6.65%
Annualised volatility: 2.52%
Strategy: Invests in alternative credit funds
Share classes: sterling, euro and US dollar institutional and retail
Administrator: CACEIS, Fastnet (Ireland)
Auditor: PricewaterhouseCoopers
Custodian: CACEIS Bank Luxembourg (Ireland)
Domicile: Bermuda
Listing: Irish Stock Exchange
Management fee: 1.5% (institutional); 1.9% (retail includes 0.4% annual trail commission)
Performance fee: 10%
Minimum investment: £10,000, €15,000, $20,000
Redemption period: monthly, with 95 days’ notice