Highly commended: Best performing specialist fund of hedge funds over 10 years

When PM Capital Partners launched the Alternative Equity fund of hedge funds (FoHF) in 2000, it wanted to create an investment vehicle that would offer better returns than equity markets with lower volatility. Annualised returns of 6.6% with a volatility of 8.4% suggest the fund, a concentrated multi-manager portfolio investing in global long/short equity and commodity trading adviser (CTA)/macro managers, is succeeding in its aims.

The managing partners are Patric Corti, responsible for investment research and business management, Daniel Giger, who is portfolio manager, and Marco Thurnheer, head of operations and risk management. Together they have 45 years of experience in financial markets, covering roles in trading, risk management, operations, research and portfolio management.

Giger says the success of PM Capital Partners comes from a disciplined and structured investment and risk management process as well as from avoiding strategies that are complex, hard to understand or provide an illiquidity premium. While it is important to utilise portfolio management techniques to control risk, it is also vital to challenge the commonly accepted and use common sense at all times, believes Giger.

“Our two core strategies – long/short equity and CTA/macro – are the most liquid and transparent,” says Giger. “Moreover they have no capacity issues and are robust over time. Recently a lot of investment has gone to exchange traded funds (ETFs) and that shows that many investors have given up on stock picking but our managers are stock pickers. You should never underestimate the potential of good stock picking.”

Allocation is extremely active, with investment duration ranging from a single day to five years. Management strategies that are un-correlated with each other are preferred.

“When we are looking for the right managers, first of all we have fairly strict criteria as we are a specialist fund,” explains Giger. “We are typically looking for medium-sized funds that offer liquid terms as well as high alignment of interests. We would look for other qualitative factors, too.”

Giger continues: “We ideally want the owner to have an active role in the business. We would consider the quality of team and manager capability. We would want to know that the nature of the returns was repeatable, that they would make money through most times and conditions and avoid the pitfalls when the economic cycle shifts.”

Once a suitable fund has been identified, managers are monitored to ensure the selection process has not missed any red flags, signals that suggest potential managers do not quite measure up to the fund’s standards.

“We need a lot of operational questions to have the right answers. There are criteria that we don’t compromise on,” Giger insists. “These include an independent board of directors, all performance numbers audited, high-quality service providers and so on. If a manager falls short on any of them, they won’t progress in our portfolio management process. As a backstop in our team, we have three partners who can veto any allocation if any of them is uncomfortable with a fund; it only takes one.”

Fund facts

Full name of fund: Alternative Equity
Name of investment/management company: PM Capital Partners
Portfolio managers: Daniel Giger and Patric Corti
Contact: Daniel Giger (Stauffacherstrasse 26, 8004 Zürich (+41 (0) 44 533 23 30; fax +41 (0) 44 533 23 31; info@pmcapitalpartners.com; www.pmcapitalpartners.com)
Launch date: March 31, 2000
Assets under management: $88 million
Annualised return: 6.6%
Annualised volatility: 8.4%
Strategy: global long/Short Equity and CTA/macro
Share classes: US dollar, euro
Administrator: UBS Fund Services (Luxembourg)
Auditor: PricewaterhouseCoopers
Custodian: UBS (Luxembourg)
Domicile: Luxembourg (Sicav)
Management fee: 1.25%
Performance fee: 5% above high watermark
Minimum investment: $500,000
Redemption period: quarterly with 65 days’ notice