Limestone Capital is readying to launch an unusual hedge fund—a long/short vehicle that will invest exclusively in exchange traded funds. Rob Hounshell, president and chief investment strategist of the Raleigh, N.C.-based firm, launched a long-only ETF in March 2005 and believes that an ETF hedge fund is the next logical step.
“I decided my strategy was appropriate for the hedge fund world as well, because I want the ability to go long and short and also to use margin,” he said. “I really couldn’t do that in my registered investment advisory because it’s all retirement money.”
Hounshell, who likes ETFs because of their liquidity and their low volatility, founded Limestone a-year-and-a-half ago but has been in the money management business for 18 years. He said that for the new fund, he will look at a universe of about 25 ETFs and will use anywhere from zero to 10 of them in the portfolio at any given time.
“They are fairly concentrated positions, but they are exchange traded funds so they are inherently diversified,” he said.
The minimum investment in the new fund is $100,000 and there is a one-year lockup. Fees are 1% for management and 20% for performance.
Hounshell estimates that he will launch his fund with “a few hundred thousand” dollars in assets under management but has the capacity to take in up to $500 million.
He is currently looking for a partner to provide seeding, though he has gone ahead and hired an administrator and is in the final stages of securing a prime broker.
“A seed capital partner would be a great way for me to go,” he said. “Sometimes you have to give up a little bit to really get where you want to be.”