Former Moore Research Head Makes Case For Alternative Beta

Apr 1 2008 | 2:47pm ET

One hedge fund honcho thinks investors need not invest in hedge funds to get hedge-like returns. Jerome Abernathy, the former research director at Moore Capital Management, is currently marketing the Stonebrook Alternative Beta Fund, which he says can achieve alpha without the risks and fees associated with hedge funds.

Abernathy said the $54 million fund, which attempts to deliver hedge fund-like returns by periodically rebalancing a portfolio of simple instruments like the Standard & Poor’s 500 and Russell 2000 indicies, and treasury bonds, tends to out-perform during periods of liquidity crises and under-performs during periods of very strong returns for hedge funds in general.

So how did the fund, which launched in May, do during last year’s subprime crisis and January’s global equity crisis? The unlevered version finished its first six months up 9.6%, though it is down 2.85% through February, identical to the HFRI FoF Composite Index’s decline.

While Abernathy concedes that hedge funds and funds of hedge funds do generate alpha on a gross basis, he countered that the alpha is more than offset by the high fees so, on a net basis, they don't deliver any alpha to investors.

“The fund offers weekly liquidity (notice on Monday, money wired out on Friday), no headline risk, and superior tax treatment,” claimed Abernathy.

The fund charges a 1.5% management fee and has a $500,000 minimum investment requirement.

“We think alternative beta will change the way investors view hedge funds and measure their performance,” said Abernathy. “In the same way beta was separated from alpha with the advent of equity index funds, we will see the same separation in hedge funds.  It is a natural evolution.”

Next up for Abernathy? A mutual fund platform to be launched sometime in June.


In Depth

Dillon Eustace: The Advantages of ICAVs

Feb 11 2016 | 7:51pm ET

As the growth of alternative investment vehicles continues, global asset managers...

Lifestyle

Citadel's Ken Griffin Donates $40M To New York's Museum of Modern Art

Dec 22 2015 | 9:23pm ET

Citadel founder Ken Griffin has donated $40 million to New York’s Museum of Modern...

Guest Contributor

Hedging Against Reputational Risk in the 21st Century

Feb 12 2016 | 7:18pm ET

For investors, the first step in researching a new fund or manager is to google...