Stenham Quadrant: Stenham Asset Management

Best Performing Specialist Fund of Hedge Funds Over 10 Years: Winner

Having just passed its 10 year anniversary in April 2009, the Stenham Quadrant fund
has achieved an average annualised return of 12.86%, against an MSCI index that is in negative figures.

The fund's remit is to capture major market movements through investment in a range of assets, capital instruments, markets and strategies. As such, the fund invests worldwide, with no bias being placed on any geographical allocation. Assets are invested with managers trading in four major areas: equities, commodities, fixed income and currencies.

"Capital preservation is integral to Stenham, and this has consistently been achieved over the last twenty years through sound and cautious investment principles," says the group's chief investment officer Kevin Arenson.

Emphasis is placed on researching, monitoring and reviewing managers to ascertain their suitability for blending together to achieve consistent superior returns with low volatility. Average annualised volatility of the Quadrant fund is 5.99%.

The nine strong investment team, headed by Arenson, runs an investment process which has evolved over Stenham's 25 year history in asset management, during which time it has been tested through many different market environments.

The process is qualitative with significant input from operational and quantitative research and risk is limited through worldwide diversification and hedged strategies.

Discretionary trading accounts for close to 90% of the Quadrant portfolio which invests largely in global macro managers. There is no CTA exposure and very little systematic global macro exposure.

In 2009, money was made across the range of managers in which the fund invests - largely through commodities, fixed income and direct equity exposure. The flexibility to move between the asset classes has seen the fund return 10.2% to mid November.

Approximately 30% of the entire investment team's time is spent monitoring the underlying and potential add-in managers and the decision to stay with an existing manager is an active one for the company.

"It is very important that the analysts are a spending a good proportion of their time monitoring managers," says Lynda Stoelker, investment director. "You can do this through statistical analysis but it is also important to get to know your managers. So the team is constantly on the phone talking to managers, understanding how their portfolios are constructed, what themes and asset classes they are favouring, and their long and short term views."

This ensures when market events happen the fund is able to respond as necessary.
"The primary requirement we make of all our analysts is that no matter what happens in the market they must know how their managers are going to react. And if they don't react according to what is expected then that warrants a call to the manager to find out what in the portfolio may have changed," says Stoelker.

As to qualities the fund looks for in a manager, Stoelker says this will vary depending on the strategy being followed, but sustainability ranks highly. When assessing a new manager, the analyst team will also examine the length of time the manager and his supporting investment team has worked together and the sustainability of the business.

"It is not always the case that a good quality fund manager will also be good a running a business. So it is important for us to know there is someone in the business who can," adds Stoelker.

FUND FACTS: STENHAM QUADRANT

Full name of fund: Stenham Quadrant USD Class
Name of portfolio manager: Kevin Arenson
Name of investment/management company: Stenham Asset Management
Contact: Sudha Bharadia (+44 (0)20 7079 6711, sudha.bharadia@stenham.com)
Launch date: April 1999
Portfolio size: $578.3 million
Annualised return: 12.86%
Annualised volatility: 5.99%
Strategy: multi-strategy
Share classes: US dollar
Administrator: Fortis Prime Fund Solutions (Isle of Man)
Custodian: Fortis Bank (Channel Islands)
Domicile: British Virgin Islands
Management fee: 1.5%
Performance fee: Class A: none; Class B: 10% of the growth in NAV above 15% annually
Minimum investment: $25,000
Lock-in/up: none
Redemption period: monthly with 33 days notice