Kentucky Hedge Fund Gains 55%, Offers SMA Platform

Feb 17 2009 | 1:32am ET

Lexington Asset Management is making the leap into the institutional market after its breakout 2008. The Lexington, Ky.-based hedge fund aims to build on its success last year, with a new separately-managed account platform, which will debut this week.

Portfolio manager Rob Hounshell said the firm had been kicking around the idea of a SMA platform for a long time, but current liquidity and transparency issues in the hedge fund space exacerbated the launch.

“Even before the Madoff situation, institutions wanted to know they can pull the plug on their investments,” said Hounshell. “They also like to see their assets and plug them into their database to see how we’re doing versus what they’re doing.”

The firm expects its first allocation either in March or April from a fund of funds.

Hounshell said institution investors are taking a serious look at managed futures given the well-publicized performance issues of hedge funds, and argues that CTAs as an asset class should make up the bulk of an institutional portfolio rather than long only stocks.

“If you’re able to get past the risky mantra of managed futures, the numbers are much more favorable than long equities,” he said.

Lexington returned 55% net last year to its investors. Hounshell said Lexington rode the commodities wave up in the beginning of the year and down in October.

“If you look at long/short hedge funds, many of them were fairly net long and had poor performances. We’re all about absolute return and our performance last year was a testament to that,” he said.

This year, Lexington has gotten off to a slow start dropping a few percentage points in the first two months of trading. Hounshell said he doesn’t expect to see the same type of volatility and returns this year but believes the fund will continue to profit nonetheless.

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