T-Circle Partners Onshore Fund Delay Inspires Offshore Offering

Aug 11 2006 | 12:00am ET

Tuono Corp.’s T-Circle Partners Fund, a hybrid managed account product offered to institutional investors, postponed the planned April 1 launch of the firm’s onshore vehicle, with executives now anticipating an early September launch (FINalternatives 2/17). However, on July 31, the Naples, Fla.-based firm went ahead with the launch of a similar offshore product that is open to non- U.S. investors.

Michael Billy, ceo, said the firm deferred the fund launch because of the three-year track record required by many institutional investors, which the firm passed in June.

Additionally, the firm had to overcome hurdles involved in transitioning from a retail managed account into an institutional hedge fund. Billy could not comment on the onshore fund because it is in the Security and Exchange Commission’s quiet period. The offshore offering, Tuono Circle Ltd., is based on an absolute return strategy that “creates or rebalances market participation in 16 different ways under one multistrategy process.”

Institutional investors, such as pensions and endowments, have been adding portable alpha strategies to their portfolios in recent years, though Billy is quick to note that Tuono is not a “Johnny come lately” to the strategy. The firm has utilized the style in its managed accounts for more than three years. It has had positive returns for 33 of the last 40 months. Year-to-date, the methodology has returned 18.09% in the firm’s managed account.

In May and June, when many funds suffered, the methodology returned 0.74% and 2.49%, respectively, and July’s returns saw a gain of 6.41%. The firm’s monthly objective for the offshore fund is 2% to 2.5%.

“The Tuono 4x4 matrix is designed to smooth out returns, diminish volatility and produce consistency,” Billy said, explaining that the matrix is the firm’s systematic style composition guide. He added that within its structure, the firm considers current and projected market conditions, geopolitical scenarios, outlook for interest rates, seasonal cycles, spreads and option volatility.

The offshore fund has a $2 million minimum investment and a one-year lock-up period. The management fee is 1.5% and the performance fee is a 65/35 split, which Billy acknowledges is high. But, he says, the strategy will deliver.

 The firm hopes to raise $150 million to $200 million for the first “tier” of investment within six months and expects to add another $150 million to $200 million after that in a second tier.

“It’s a very aggressive schedule,” Billy acknowledged, “but we believe our historical track record will attract institutional types.”  

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