Wheelhouse Capital Offers ETF-Focused Fund

Sep 30 2006 | 8:47am ET

At a time when the hedge fund industry is facing increasing criticism for charging sky-high performance fees while returns lag, Wheelhouse Capital, which will begin accepting outside money next month, is going a long way to promise it won’t make money unless its investors do.
 
The Bronxville, N.Y.-based firm’s first hedge fund, a long/short U.S. equity offering that uses exchange-traded funds to implement its trading strategy, charges a standard 1.5% management fee and 20% performance fee. But, according to managing partner Charles Bryceland, figures can be deceiving.
 
“Our strategy is unique and more investor friendly than a lot of the strategies out there,” he says. For one, the performance fee is tied to the Standard & Poor’s 500 Index, rather than the Treasury bill rate. And that 20% performance fee is charged only on returns over and above the S&P500 plus the management fee.
 
“We’re not going to get paid unless we exceed our goal.”
 
To do so, the Wheelhouse Partners I, which launched on Sept. 4 with about $1 million in assets under management, goes long and short on sector ETFs, avoiding both the popular subsector offerings and Rydex Investments’ short and leveraged funds, which go short and levered within the ETF itself.
 
Some investors might cry foul over a hedge fund invested almost completely in low-cost ETFs, but Bryceland argues that they are the perfect vehicle for the fund. He points to the execution efficiency of ETFs, which also “mitigate some of the single-security volatility you have. By trading in ETFs, we’ve got a lot more liquidity and scale.”
 
Back-test data has been promising, with the fund having no down years since at least 2001 and boasting an average alpha of almost 20%. Through August, it was up 12.6% in 2006, compared to the S&P500’s 5.8%.
 
The minimum investment in the fund is $1 million. Merrill Lynch serves as the custodian, Vanthedge Point as the prime broker and Goldstein Golub Kessler as the auditor.


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