Gottex Fund Cuts Investments to Boost Returns
Gottex Fund Management Holdings Ltd. (GFMN), which farms out $8.9 billion to hedge funds, halved the number of investments in its Asia fund since late last year to improve returns, Co-Founder Max Gottschalk said.
Its $60 million Asia fund will have 22 holdings by October, from 45 late last year, Gottschalk said in an interview in Hong Kong yesterday. The Lausanne, Switzerland-based company as a whole invests $400 million in 38 Asia-focused hedge funds, with the number likely to drop to 30, he said.
Gottex is shifting to more concentrated investments in better-performing, smaller funds as investors demand higher returns. Funds of funds are redefining their roles as large pension funds and university endowments increasingly bypass them to directly invest in hedge funds after some were caught in the biggest Ponzi scheme in history run by Bernard Madoff.
“When investors are looking to invest in Asia, they’re looking for punchier returns,” said Gottschalk, 39, who is also the company’s Asia head. “Funds of funds are earning part of their keeps by providing access to some of the younger, emerging managers or smaller managers.”
Gottex’s Asia fund has retained 12 managers it invested in late last year and added others, said Gottschalk. Asia funds of big global houses were among those dropped after posting lower returns, he said.
Its Asia fund returned 1.5 percent this year though August, compared with the estimated 2.4 percent loss in the Eurekahedge Asia-Pacific Fund of Funds Index.
Gottex is joining companies such as Pictet & Cie, which are shifting to newer, lesser-known managers to boost returns. Nicolas Campiche, Geneva-based chief executive officer of Pictet Alternative Investments, said in November it would boost investments in newer managers to 60 percent from about half.
“There’s a perception that the Asia market, due to its increased risks, should generate higher performance,” Gottschalk said. “Also there’s no doubt that Asia, and the Chinese economy in particular, are drivers of global growth.”
The largest hedge fund of Paulson & Co., which oversees $35 billion, was among big global funds that underperformed peers this year. Paulson’s Advantage Plus Fund lost 34 percent this year through August, while the HFRI Fund-Weighted Composite Index dropped 1.2 percent.
The dollar amount of Gottex’s regional investments through its Asia and global funds has remained stable through 2011, Gottschalk said. Its Asia fund may cut the number of managers it has investments in to 20 by the end of the year, he added.
“If you over-diversify your portfolio, obviously you reduce risk in the portfolio, but you also give up a lot of performance for that,” Gottschalk said.
Gottex may change 20 percent to 25 percent of the Asia hedge funds it invests every year, up from as much as 15 percent, Gottschalk said. Gottex likes global macro managers who seek to profit from economic trends by trading equities, bonds, currencies, rates and commodities. It also favors some managers that bet on rising and falling China stocks.
Gottex moved Gottschalk to Hong Kong earlier this year to help expand its business in the region.
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