Culross Global Fund: Culross Global Management

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

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

It is the thematic focus of the Culross Global Fund which differentiates it from its peers, according to the fund's managers, Culross Global Management CEO Nigel Blanshard and director Chris Keen.

They point to the limited track record - under two years - of the very few funds in the market which also pursue a thematic approach and add they know of "no other funds employing a manager selection process even closely similar to ours".

Currently, Blanshard and Keen employ nine themes across the Culross Global Fund - a theme being defined as "the opportunity to profit from a favourable but as yet under-recognised change" - with a target range of 25-30 underlying funds.

At the beginning of the year, anticipating that a recession which included the combination of falling equity markets, a banking crisis and falling real estate markets would lead to an extended duration for the downturn, the Culross investment team adopted a bias "to emphasise caution in the overall stance of our portfolios".

However, the team also flagged the possibility of attractive opportunities in credit and "the likelihood of a positive environment prevailing in a range of markets where arbitrage capital and expertise has been withdrawn."

The dominant theme in the portfolio at the end of August was relative sovereign opportunities, with a 27% weighting, followed by arbitrage and cash at 12% and inflation/deflation uncertainty , global financial sector dislocation and energy market opportunities all weighted at 10%.

Other themes included Japanese corporate event opportunities, credit spreads in transition, Asian consumer power and European economic change.

Themes are expected to work for 12-24 months and if successful may evolve into 2nd or 3rd generation themes.

While the themes will change infrequently say the managers, the weightings towards them are subject to monthly re-examination. The managers conduct scenario analysis that assesses the risks to the themes and then the risks in the managers, weighting them according to their probability and their potential impact on the portfolio's control process.

Blanshard and Keen stress they "do not use VaR", neither is risk assessment ‘switched on' once a month or quarter. "Being aware of market activity each day makes us sensitive to portfolio risks on a continuous basis."

The second stage in the investment process is manager selection. Ideally each theme is covered by several managers employing different techniques to profit from the same theme. Culross optimises the combination of those managers who have qualified from its screening process to determine the best mix. This provides a second level of risk control.

At the manager level, Blanshard and Keen conduct continuous assessment of the managers following a four Ps process under the headings: People, Process, Performance and Paperwork.

Qualities the managers say they look for in a manager are typically, a high conviction investor with at least five years' experience in the market, running a focused portfolio with assets under management of between $100 million and $600 million, a minimal user of leverage and an advocate of liquidity for flexibility.

The managers add that the fund has a bias towards smaller funds because performance is usually better, risk assessment is more certain, transparency and relationships as well as liquidity are better.

Typically a drawdown of 15% puts a manager on the watch list. At 20% the managers will consider reducing the position in part or entirely.

Both managers have been active in selecting hedge funds and building portfolios for an unusually long period of time - 13 years in the case of Blanshard and nine years for Keen - long experience which they use to build their macro economic outlook from which themes are extracted. Their extensive first hand experience also provides a significant edge in constructing the portfolio, selecting managers and evaluating risk.

The Culross Global Fund is designed to generate conservative absolute performance with bond like risk. Its return since inception in December 1999 has been 140.87%, against the MSCI World ($) of -22.10%, and an annualised return of 9.6% against -2.57% from the index.

The combination of thematic investing and manager selection has won the team many awards - claiming two awards at the 2008 Hedge Funds Review, European Fund of Hedge Funds Awards, for the best performing diversified fund of hedge funds over one year and over three years on a risk/return basis.

The Culross team of nine permanent staff consists of four investment and research individuals, four operations and one investor relations.

FUND FACTS: CULROSS GLOBAL FUND

Full name of fund: Culross Global Fund
Name of portfolio managers: Nigel Blanshard and Chris Keen
Name of investment/management company: Culross Global Management
Contact: Su Luquet, 39 Dover Street, London, W1S 4NN, United Kingdom (+44 (0)20 7409 8660; su@cgml.co.uk)
Launch date: December 1999
Assets under management: $215 million
Annualised return: 9.60%
Annualised volatility: 4.97%
Strategy: thematic
Share classes: US dollar, sterling, euro, Swiss franc
Administrator: Maitland Fund Services
Auditor: Deloitte SA Luxembourg
Custodian: HSBC Institutional Trust Services (Ireland)
Domicile: British Virgin Islands
Listing: Irish Stock Exchange
Management fee: 1.5%
Performance fee: 10% over a hurdle rate of 5% per annum
Minimum investment: $100,000
Lock in: none
Redemption period: monthly with 65 days notice