Absolute-return manager Advocate Asset Management has recently opened up its Advocate Partners LP fund to outside investors. The fund-of-funds-like vehicle, which was launched late in 2004 with partner money and now has $105 million in assets under management, uses exchange-traded-funds for its underlying investments.
"Our strategy is straightforward and low cost," said Mike Kimbarovsky, a principal at the Chicago-based firm, which was founded in 2001 by David Kudis has a registered investment advisor.
Before launching the Partners fund, the firm ran separately managed accounts. Kimbarovsky said that the firm decided to base its investments on ETFs because they give investors purer access to the market-place at a lower cost than stock picking. He said the fund is also tax efficient.
"Investors really demand a low-cost mechanism to access the marketplace, and they realize that active management doesn't work," he said. "Over a two-, three-, five-year horizon, the probability of an active manager beating the benchmark is very low."
And Kimbarovsky should know. He has served as president of boutique advisory firm Hedge Fund Research, which is well-known for its hedge fund indices. Kimbarovsky said he is seeing tremendous interest in the Partners fund, especially from European investors, but thus far most of the assets have been raised by personal introductions. He is hoping to expand the client base to include "higher-net-worth retail investors," by which he means those that are "qualified" but not necessarily Ã¼ber-wealthy. He would also like to target institutional investors —a few of which are already invested in the fund —though he is finding it difficult to get the consultants on board.
"The problem with [institutional investors] is that they have consultants, and consultants find great comfort in style boxes," he said. "An ETF fund-of-funds now doesn't fit into a style-box."
The fund is targeting returns of 12-15% net of fees, and it doesn't employ leverage. There is a one-year lockup, and fees are 1%for management and 20% for performance. There is a high watermark and a hurdle rate of the 91-day Treasury.
"We really want to be aligned with our investors," he said.