Best Performing Diversified Fund of Hedge Fund Over 1 Year: Highly Commended

The HDF group was the first independent French multi-manager in the alternative sector and the Multi Alternatives fund remains to true to the firm's founding principles of integrity, qualitative selection, and capital protection and volatility control through risk management.

Launched in 1991 the fund follows HDF's refined investment process that combines a top down macroeconomic analysis with a bottom-up approach to investment portfolio construction.

There are four key stages to the process, including developing the macro economic outlook, a house speciality. In-house views are complemented by input from respected outsiders, an arrangement in place since the early 1990s, and spearheaded by Christian de Boissieu, the highly respected French economist.

The final assessment of the macroeconomic outlook over 12 to 18 months constitutes a cornerstone in HDF's investment process, followed by asset allocation and the final choice of underlying funds. Qualitative factors make up 80% of the decision process.

Risk management is a serious issue, undertaken by staff at every level throughout the firm and operational risks are specifically managed at two levels by two mutually reinforcing teams, controlled by an independent committee which can issue a veto.

Operational risk controls are kept independent from the investment management line. The controlling committee can also issue vetoes.

Such strict controls allow HDF and the fund to keep three important promises to investing clients. First, there is no compromise on due diligence, no matter how tempting.

"Before 2008, everyone promised the same thing - performance, due diligence and liquidity. Few have held true on that promise. We were not involved in any blow-ups. It was not luck - when we see one red flag that means we do not invest," insists Gilles Guérin, deputy chief executive officer of HDF.

Secondly, HDF makes a liquidity promise, ensuring that liquidity assets match the liquidity of the fund, both at the fund of hedge funds and the individual hedge fund level.

"There were no sidepockets and no gates. Despite outflows, all the money has been given back to investors when it was meant to be given back," says Guérin.

Finally, the firm defines ‘to hedge' as ‘to protect'. It will only invest in funds that can hedge when they want and need to, discounting both distressed and ABL strategies. If a fund manager cannot exit, then HDF is not interested, "even if they are making tonnes of money," says Guérin.

Two years ago, the fund was criticised by competitors for not taking advantage of high performing strategies. Guérin feels vindicated by HDF's stance and the fund's performance throughout the crisis. "Multi Alternatives was down 10% last year, others were down 20%. It is not something you would wish to see, but we still kept the volatility stable."

Investors have come round to the HDF way of thinking and Guérin hopes they retain a long memory of recent events. He says investors are more careful now and stringent about checking each fund's stability. "We too are spending a lot of time and attention on this matter and will keep it that way," he says.

FUND FACTS: HDF MULTI ALTERNATIVES

Full name of fund: HDF Multi Alternatives
Name of portfolio manager: Christophe Jaubert and David Gilleron
Name of investment/management company: HDF Finance
Contact: Christophe Chouard, 40 rue la Pérouse, 75016 Paris, France (+33 1 44 17 12 65, cchouard@hdf-finance.fr)
Launch date: November 1991
Assets under management: $559 million
Annualised return: 5.42%
Annualised volatility: 3.5%
Strategy: multi-strategy
Share classes: A euro - C euro - I euro - M euro - A US dollar - C US dollar - A Swiss franc - C Swiss franc
Administrator: HSBC Securities Services
Auditor: PricewaterhouseCoopers
Custodian: RBC Dexia Investor Services Bank (for French funds) and HSBC Securities Services (for Luxembourg funds)
Domicile: HDF Multi Alternatives is a French domiciled "ARIA 3" fund
Management fee: 1.70%
Performance fee: 10% over Libor US dollar overnight
Minimum investment: $100,000
Lock-in/up: none
Redemption period: 10 business days if less than $200,000; 60 business days if equal to or more than $200 000 and less than or equal to 1% of net assets; 90 business days if more than 1% of net assets