Monday, 27 February 2017
Last updated 2 days ago
Mar 31 2006 | 12:14pm ET
Beacon Rock Capital Partners is revving up to launch its second hedge fund, the Beacon Rock Capital Downside Capture Fund, which is a short-only vehicle.
"Short funds are structured to make money when the market goes down, but generally have problems when the market goes up," said Trevor Taylor, chief investment officer, "but we want to provide investors with a vehicle that will prosper when the market goes down, but not lose money or very little when the market goes up. This can only be achieved with options."
The new fund, which Taylor and Blake Singer, president of the firm, expect to launch in early summer with $10 million in assets under management, will employ the same systems and models utilized in the firm's existing fund —the Beacon Rock Capital Fund —in which the managers trade options on broad equity indices, sector-specific indices and commodity-related indices.
The managers will use technical and statistical analysis as well as proprietary quantitative models to determine their exposure to the markets.
The firm's first fund currently has $41 million in assets under management and was launched under the Beacon Rock name in June 2005, but Taylor has been running the strategy since 2002.
According to Taylor, short-only strategies are less common than other hedge fund strategies.
"It is a very difficult strategy to do well, but there is a huge marketplace for it…we think we can turn this into a successful business," he said.
The firm's target clients are fund-of-hedge funds. Taylor said the fund is particularly attractive to them in order to provide a hedge against market shocks caused by geopolitical events —such as the Sept. 11 attacks or the October 1987 stock market crash. "If we can do it well I think it will gain a lot of acceptance," Taylor said.
"Many hedge fund investors would love a 'free-hedge' on their portfolios that are often long-biased. This product can provide them with that as we aim to deliver a fund that will excel in declining markets, but still deliver reasonable absolute returns over time."
The minimum investment in the new fund is $500,000 and there will not be a lockup period. The fee structure will likely be 2% for management and 20% for performance, and the strategy has a capacity of $500 million.