Alternative Investment Partners has filed a prospectus with the Securities and Exchange Commission to spin-off a fund from its Alpha Hedged Strategies Fund called the Beta Hedged Strategies Fund. The target launch date is Mar. 31.
Lee Schultheis, chief investment strategist and co-founder of AIP, says the team is in the process of converting the Alpha fund into two mini-funds. The funds will be packaged as two independent investment vehicles, but they will share some of the same underlying managers. The Alpha fund currently has 50 managers; the Beta fund will start out with 10 managers, including five with long-short equity strategies, one with distressed securities, an event driven manager and one handling merger arbitrage, among others.
Schultheis hopes to grow the fund to 40 or 50 managers to "get really broad diversification." Schulteis expects the fund will have 15 to 20 managers by this time next year, adding "the diversification shareholders will get [with the fund] will be on par with a hedge fund of funds."
"The net cost to shareholders will be identical," Schultheis says. "Really it's just a different way of mechanically producing the end-fund NAV. Now we have over 1100 security positions in the fund. We will have the same number of securities in the new fund without any detriment to shareholders."
The year-to-date return of the Alpha Hedged Fund Strategy is 3.87% as of Jan. 30, with an annual return of 7.04% and an annualized three-year return at 8.51%. Since inception, the fund has returned 7.22% annualized. It has $165 million in assets under management.
So why mess with a good thing? "Alpha is a conservative, very market neutral-ish fund of fund type of product," Schultheis told InstitutionalInvestor.com, "with low day-to-day volatility. The Beta Hedged Strategies Fund is designed for investors seeking risk-adjusted returns, but who can take on some additional volatility and directional market exposure."
With the Alpha fund on the platforms of close to 150 financial advisors, Schultheis believes he has access to a market keenly interested in this type of strategy. The new fund's target will be low double-digit returns.
Schultheis will allocate roughly $1 million of the Alpha fund to launch the Beta fund "to offer choice and diversify that choice day one in the market place."
Funds with similar strategies have had less than stellar returns. For instance, the Rydyx SPhinX Fund has a ytd return of .71% and an annualized return since inception of 2.37%. Schultheis, who gained attracted attention in 2004 when he scrutinized a change at Morningstar that bumped the Alpha Hedged Strategies Fund from number one to number two in the conservative-allocation category, says his fund will reverse the trend. The fund currently has a three-star rating from the agency. Morningstar declined to comment for this article.
