UBP Preps Hybrid Distressed Fund of Funds

Jul 16 2008 | 3:33am ET

Union Bancaire Privée is launching a hybrid hedge fund-private equity fund of funds to exploit opportunities in the distressed market.

The SquareInvest Distressed Opportunity Fund will make its debut next month and plans to raise US$500 million from institutional and other investors. The UBP Pension Fund is seeding the fund with a “significant” amount, according to Vincenzo Narciso, UBP’s head of private equity.

“The idea is to offer our clients a one-stop shop solution to take advantage of the dislocation in the market, particularly in the distressed space,” said Narciso. “We want to combine what we do on the hedge fund side, which is our core business, with the opportunities we see on the private equity side.”

The fund will initially invest up to 80% of its capital in underlying hedge fund managers while initiating the remaining balance to commitments in p.e. funds. And at the end of the third year, depending on how the hedge fund portion of the fund has performed, the bank may make a large distribution to its investors and shift its entire portfolio to private equity.

“By doing this we eliminate one of the historical problems in p.e., which is the J-Curve,” said Narciso. “When you invest in a p.e. fund, your fee eats into the NAV so you see a negative IRR for the first couple of years. By putting money into hedge funds, you eliminate that problem because they start to perform from day one.”

The SquareInvest Distressed Opportunity Fund will invest in some 18 hedge fund managers and 12 to 15 p.e. managers in the U.K. and U.S.

It charges a 1.5% management fee and a 10% performance fee. The minimum investment requirement is US$1 million for individuals and US$10 million for institutional investors.

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