Shortlist: Best long/short equity hedge fund; Best multi-strategy hedge fund; Best non-directional hedge fund over three years

The equity-focused multi-strategy 1798 Lombard Odier Strategies Fund, launched in 2007, offers a combination of strategies.

The fund, which did not gate or suspend redemptions in 2008, reports an annualised return of 8.9% since launch.

The fund follows 10 strategies. The long/short and mixed strategies look at sectors such as US consumers and financials, healthcare, industrials and telecommunications, media and technology (TMT) as well as geographic plays such as emerging markets and Europe.

The fund also employs special situations, US events, best ideas, hedge and convertible long/short strategies. No single strategy has more than a 20% allocation in the total portfolio.

The portfolio is constructed with bottom-up and top-down research to identify mispricings on an absolute and relative basis. The analysis and valuation process then takes into account fundamental analysis, modelling and risk testing, risk/reward analysis, qualitative risk assessment and instrument assessment, as well as meetings with the management of companies in which the fund invests.

Chief investment officer Aziz Nahas and a team of sector specialist portfolio managers discuss together portfolio allocation, investment ideas and underlying themes.

The fund imposes maximum loss guidelines. For example, equity long/short exposure is limited to a maximum of plus 25%/minus 15% with a maximum gross equity to credit ratio of 200%/100 %. Daily, monthly and yearly losses cannot exceed 2%, 5% and 10% of the fund’s net asset value (NAV), respectively.

Each portfolio manager is limited to 20% of the fund’s total. The fund’s maximum leverage limit is two times assets.

Identifying what a manager may not do is key to the fund’s strategy and gives the team a framework to work within to manage risk and limits while allowing themes and positions to play out.

Each portfolio manager agrees specific limits with the chief risk officer. These can include up to 40 variables including loss, exposure, concentration, sensitivity, liquidity and volatility and the risk is monitored in real time.

Three limits are set: soft, where further investigation is needed; hard limit 2, where the position needs bringing back into compliance; and hard limit 1, where the position is liquidated. A cash cushion of around 30% is also held outside the prime brokerage network and the portfolio concentrates only on liquid assets.

The fund generated positive returns in 72% of months since inception. The monthly excess unleveraged return stands at over 1% on both the long (1.05%) and short (1.27%) side with the long book generating a cumulative 23.8% excess return and the short book showing 29.9%.

The fund has been successful in attracting capital with assets under management almost doubling from $692 million at the end of 2009 to $1.08 billion at the end of 2010.

Another key feature of the fund is its management team, what Lombard Odier Asset Management describes as ‘no egos – overconfidence leads to errors’. Aziz Nahas, CIO, works with a team of 11 portfolio managers, each supported by traders on the investment side.

Hubert Keller heads the business side of Lombard Odier AM.

Nahas previously worked at Dillon Read as global head of equities; JP Morgan as global head proprietary equities; CSFB as head of equity derivatives; and Banque Paribas as a convertible trader. Keller has worked at Deutsche Bank as global co-head of equity capital markets; SG Warburg as vice president of equity capital markets; and Compagnie Financiere as associate in the treasury group.

Fund facts
Full name of fund: Lombard Odier 1798 Fundamental Strategies Fund
Name of portfolio manager: Aziz Nahas
Name of investment/management company: Lombard Odier Investment Managers
Contact information: Lombard Odier, 888 7th Avenue, 11th Floor, New York 10106
Launch date: December 1, 2007
Assets under management: $1 billion
Net cumulative performance since inception: 35.46%
Annualised return: 9.3%
Annualised volatility: 10.71%
Sharpe ratio: 0.86
Strategy: equity focused multi-strategy
Administrator: Citco Fund Services (Dublin)
Auditor: PricewaterhouseCoopers (Cayman Islands, New York, Dublin)
Prime broker: Goldman Sachs, Morgan Stanley, Credit Suisse
Legal counsel: Schulte, Roth & Zabel, Maples and Calder (Cayman Islands), Lenz & Staelin (Switzerland)
Domicile: Cayman Islands
Management fee: 2%
Performance fee: 20% with high watermark
Minimum investment: $1 million
Lock-in: none
Redemption/liquidity terms: monthly with 30 days’ notice