Absolute Investment Retools Fund Of Funds-Like Mutual Fund

Mar 15 2007 | 1:00pm ET

The Absolute Strategies Fund, a fund of hedge funds-like mutual fund, this week added two new managers to its mix: Mohican Financial Management, a convertible arbitrage shop, and Kovitz Investment Group, an equity long/short shop. Mohican and Kovitz manage $65 million and $950 million in total assets respectively.
 
Jay Compson, Absolute Investment Advisor’s co-founder, is bullish on the new additions. “We’ve been avoiding convertible arbitrage since launching the fund because we felt that there was too much capital chasing that area, and that’s what happened in 2004 to 2005,” he said. “Since then, we’ve seen a little bit of a shakeout so we started looking for mangers who were able to manage through that dislocation. Mohican does an excellent job of managing risk.” He added that both managers are expected to generate returns in the mid-teens.

The Absolute Fund also has exposure to distressed debt and fixed income strategies in addition to long/short equity and convertible arb. The new additions take the place of three managers who were recently dropped, leaving the $225 million fund with a dozen underlying managers.

The now former sub-advisors managed only about 5% of the funds total assets, and were liquidated for different reasons. “Moody Alderich Partners’ strategy (long domestic equity) was providing too much beta,” Compson said. “TT International, a European equity strategy, was well beyond capacity for assets and Scout investment Advisors’ (long-only technical) portfolio manger left late last year.” 

Compson added that the firm is not looking to add more sub-advisors because “beyond 15 managers you’re losing any diversification.” Since inception in July 2005, the fund’s A-share and I-share classes have returned 7.92% and 8.56% respectively. The fund’s C-share, which launched last January, is up 7.08% since inception.

The firm is considering the launch of a more aggressive fund, more concentrated in terms of the number of managers (six or seven) and featuring more alpha and higher volatility, according to Compson. The new offering may come before the end of the year.

The fund charges total fees of 195 basis points, including payments to the sub-advisors. The minimum investment requirement for the institutional share class is $1 million.

Prior to founding Absolute Investment in 2004, Compson was a portfolio manager and at Abington Capital, a Boston-based long/short equity shop.


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