Wednesday, 28 September 2016
Last updated 21 hours ago
Jan 12 2007 | 3:30pm ET
Most hedge fund-like mutual funds are light on the former and heavy on the latter. But a new vehicle from San Francisco’s Forward Management is turning the concept on its head. The new Forward Long/Short Credit Analysis Fund is a mutual fund, but it has a lot more in common with the Greenwich crowd than its Boston peers.
“Unlike the ‘hedge fund light’ mutual funds, this one is designed just like a hedge fund, but with daily pricing, daily liquidity and mutual fund-like transparency,” explains Forward President Alan Reid.
It’s also going after a different set of investors: The fund, just like a hedge fund, is open only to accredited investors, that is, those with a net worth of at least $1.5 million or at least $750,000 invested in the fund (there is a $25,000 minimum investment requirement). The fund charges a 20% performance fee on top of its 1.59% management fee, allowing it to hire actual hedge fund managers to invest for it.
“We’ve really been able to go after top skills in the industry because we offer a performance fee,” Reid says. For the first fund, Forward has hired New York-based hedge fund manager Cedar Ridge Partners as a sub-adviser, with Cedar Ridge’s Alan Hart and Guy Benstead handling portfolio management. According to Forward, Hart has run a credit-based hedge fund for almost three years.
Another key feature of the new fund is its simplified tax-reporting structure. Like other mutual funds, it offers Form 1099 reporting.
“The marketplace has really come to us and said, what we’d really like to see is more access to alternatives,” Reid says. “We don’t mind paying performance fees, but we hate [Schedule] K-1s.”
In other words, it’s competing with hedge funds, not Fidelity.
“It’s really a hybrid mutual fund-hedge fund,” Reid says. “It’s really what the Security and Exchange Commission’s been asking for.”
“This is a single strategy,” said Jim O’Donnell, chief administrative officer. “It’s not a fund of funds. It’s utilizing a real hedge fund manager, so it’s not just taking a long-only team and slapping a 30% short exposure on it.” He adds that the Forward fund can use as much as three-times leverage.
One of the driving forces behind the new fund is Gordon Getty, its first investor, who put $10 million into the new vehicle. “He’s always been a big advocate of liquidity, and his point is, he’d much rather have a hedge fund with liquidity than one without.”
Reid says he expects this fund is the first of many with similar features, but the environment was right for a fixed-income offering.
“This is a difficult environment for investors,” he says. “People are digging hard for double digit returns.” He adds, “our clients—top registered investment advisors and wealth managers—asked us for help. They need something that won’t take up the entire bond portfolio, but at least offers some alpha.”