Hedge Fund and Private Equity Portfolio Solutions

“Successful investing is anticipating the anticipations of others.”

John Maynard Keynes

 

The madness, or wisdom, of crowds constantly influences the mood of markets clouding their efficiency level and increasing volatility. Well-constructed portfolios will “anticipate” such divergences from expected averages by incorporating tactical elements and alpha driven investments.

It is in the context of achieving higher risk adjusted returns that the inclusion of Alternative Investments finds a role in portfolio construction. Unbridled managers that can find market anomalies or exploit unobserved tactical advantages can provide a much sought after de-correlation to a traditional portfolio and also produce additional positive returns.

The rationale for including in a portfolio absolute return vehicles or at least volatility crushers such as Hedge Funds has been amply documented in academic and practitioners’ literature; however, it is the actual implementation that generally creates issues. As Yogi Berra once said” “In theory there is no difference between theory and practice. In practice there is….” Choosing the right managers and creating a successful portfolio of Hedge Funds has proven elusive for many investors, institutional and not.

The alpha universe of Hedge Funds is ridden with operational and strategic issues that an investor or an allocator must be rightly equipped to handle. For example, it is usually the case that Emerging Managers have higher returns than established outfits as they are more starved for financial and personal success and yet their associated business and operational risk is so high that makes the expected return advantage a chimera.

Analyzing performance properly is also tricky; most investors rely blindly on a simplistic and purely quantitative process with the result of merely chasing performance.

For many investors the real stumbling block is size and investment minimums. By going direct, it may take an allocator north of $150 million to build an efficient exposure, a prohibitive number for many investors. The alternative is utilizing Funds of Funds which unfortunately come with their own set of deficiencies such as two extra layer of fees, static and standardized portfolios, unmanaged liquidity and occasionally grossly mismanaged due diligence.

The THALASSA CAPITAL process seeks to overcome all of these issues and provide a solution that is customized and pro-active. We work with some of the best money managers in the world across multiple strategies.

Our platform allows us to customize portfolios that can meet unique investment and liquidity needs for each clients. We have a $250,000 investment minimum for “Strategy” solutions and a $1 million minimum for fully tailored portfolios with no per fund minimum.

Additionally, we utilize timely and independent third party research on the industry overall and on the specific funds available on our system. Our research process spans from highly quantitative to uniquely qualitative as we believe that proper manager selection needs a comprehensive analytical approach. In our risk management process, we strive to go beyond mere return-based information as we blend these data with scenario dependent analysis and other discretionary techniques. In an active effort to disperse and control hedge fund risk, we include processes such as:

  • Limiting portfolio exposure to specific sectors
  • Implement tactical allocation shifts based on risk changes
  • De-allocations in case of manager’s style drifting
  • Monitoring leverage

A key element to successful alternative investments is dealing with counterparties of the utmost integrity. Our institutional safeguards are the following:

  • Custodian – Bank of New York Mellon
  • Administrator – Trident Trust Company
  • Auditor – Ernst & Young

Through our hedge fund portfolio solutions, our clients can access institutional-quality hedge fund portfolios and invest alongside the world’s largest institutions.