Gems Perennial: Gems Advisors

Best Performing Specialist Fund of Hedge Funds Over 3 Years: Winner

Gems Perennial is a ‘best ideas fund'. It offers exposure to hedge funds and other vehicles that can have longer investment horizons than those found in the company's Gems Low Volatility and Gems Recovery portfolios. The emphasis is often on long term strategies and positions with an eye to potentially tremendous profits that may take time to bear fruit.

The portfolio is highly focused, giving extra importance to manager selection within the investment process. Manager selection makes a substantial contribution to Gems' performance.

In depth analysis of potential managers takes between three and twelve months. Gems' emphasis has always been on research - of the 56 staff at the company, 29 are involved in investment work. The core team has worked together for over 15 years.

The manager selection process is both qualitative and quantitative, with the qualitative element usually dominant in the ultimate selection of a manager. The process culminates in a narrative report compiled by specialists in the investment research, operational research and risk analysis teams. It gives a clear account of what are often complex matters and an understanding of the manager's investment strategy, portfolio management philosophy, organisation and investment guidelines.

When it comes to risk management, Gem's governing approach is conservative. Risk management considerations infuse the entire strategic decision taking process.

One of the research team's essential functions is to reduce risk, especially exposure to extreme albeit rare risk scenarios. This helps to optimise and, on occasion, temper the implementation of Gem's strategic views, whether by giving pause for thought, drawing attention to potential emerging problems, sizing an allocation or timing moves into or away from a particular strategy.

The successful application of the process to different market conditions makes Gems highly adaptable and sensitive to strategic shifts in the investment landscape.

When it comes to timing, the current market scenario is seen as a strong indicator of which strategies are most likely to be profitable over both the short and long term. For strategies that are subject to market conditions, a great deal of attention is devoted to timing entry into and exit within the portfolio.

Despite the weight normally being given to strategy allocation within the portfolio, when an exceptional manager is proposed for inclusion, a concerted effort is made to include it. This is done through resizing or redeeming less attractive positions.

The fund is currently positioned to exploit a number of the wide ranging, often multi-year opportunities that have emerged in the wake of the recent crisis. One quarter of the portfolio is in directional strategies. These are diverse, thematic positions that complement the core strategies in the portfolio.

Deep value, equity driven and long short strategies are all taking advantage of the strong capital markets and raised activity. All are targeting returns over one to three years.

Deep value is rebounding fast, after a long period of sell offs when investors were wary of stocks that appeared unusually cheap, Gems says. Directional strategies remain well diversified, with holdings in financials, healthcare, commodities and technology.

FUND FACTS: GEMS PERENNIAL

Full name of fund: Gems Perennial SP Regular 3Y
Name of investment/management company: Gems Advisors
Contact: Stuart MacDonald, 43 Grosvenor Street, Mayfair, London, W1K 3HL (+44 (0)20 7493 1617)
Launch date: January 2006
Portfolio size: $84.5 million
Annualised return: 20.81%
Annualised volatility: 21.57%
Strategy: multi-strategy
Share classes: US dollar and euro
Administrator: Citco Fund Services (Luxembourg)
Auditor: Pricewaterhouse Coopers (Cayman)
Custodian: HSBC (Suisse)
Domicile: Cayman Islands
Management fee: 2% per annum
Performance fee: 15% per annum
Minimum investment: $100,000 or €100,000
Lock-in/up: three years
Redemption period: three years after subscription with 90 days notice or quarterly with 90 days notice subject to a 7.5% redemption charge in the first two years and a 5% redemption charge in the third year