Frontier backs synthetics over single hedge funds
Synthetic hedge funds could be an alternative way to invest in the asset class as they are liquid, cheaper and transparent, according to Frontier Capital Management.
Mike Azlen, chief executive and founder of Frontier, said at the Institute of Financial Planning conference in Wales on Monday that synthetic or clone hedge funds could be an alternative to single hedge funds or hedge funds of funds.
He said: "Most financial advisers use hedge fund of funds but the disadvantage is you pay another layer of fees and they deliver a little bit of alpha. You can replicate this by trading directly into synthetic funds."
Mr Azlen said Frontier was currently tracking 21 of the synthetic funds, were conducting due diligence on a further 15 and are using four of the synthetic funds.
He said: "The funds charge a flat fee of about 90 basis points and they have daily liquidity and they are transparent. You cannot replicate all the assets and you cannot replicate alpha but you do not need the alpha."
Every time there is a market crisis the hedge fund industry is blamed, Mr Azlen said.
He said the industry had changed from where it was 18 months ago, with the number of funds and firms expected to decline, but hedge funds were still a good asset to invest in.
Mr Azlen said: "Hedge funds overall have an attractive return and are uncorrelated when we compare them to other asset classes, therefore they are a strategic asset class so they are there for the long-term. The asset class is maturing and has been around for 20 years.
"Many companies invest in hedge funds including the British Broadcasting Corporation, British Telecom, the second largest pension scheme in the UK and universities Harvard and Yale."