Dalton Strategic Partnership plans to increase the risk profile of the Melchior European Fund, a Cayman Island-domiciled European equity long short fund which was launched in October 2006.
This change in risk profile is being made to establish a clear distinction between the risk profile of the Melchior European Fund and its sister fund, the Melchior Selected Trust European Fund.
The latter was launched in February 2010 as a Ucits III compliant fund.
Following the change, the two funds will retain identical portfolios and will be managed with the same objective of achieving uncorrelated and positive absolute returns; the only difference will be that the position sizes of the offshore fund will be double those of the onshore fund.
This will mean that the Melchior European Fund will be managed with twice the level of investment risk as the Ucits III fund at any point in time. As a result of the change, the Melchior European Fund will have a maximum gross exposure limit of 400 per cent and a net exposure limit of +/- 40 per cent. In contrast, the MST European Fund will continue to have a maximum gross exposure limit of 200 per cent and a net exposure limit of +/- 20 per cent.
This change is being made in order to recognise and meet the different needs of investors in offshore hedge funds and Ucits III hedge funds. Investors in Ucits III hedge funds tend to seek lower risk strategies which typically offer return targets of between five per cent and ten per cent per annum. By contrast, many traditional investors in offshore hedge funds are prepared to accept a considerably higher level of investment risk in return for performance objectives of greater than ten per cent per annum.
The change in the risk profile of the Melchior European Fund is due to take place on 1 September.
Magnus Spence, partner at Dalton Strategic Partnership, says: “Our research shows that the hedge fund investment community is bifurcating. Traditional hedge fund investors continue to want higher risk / higher return funds which offer the possibility of double digit returns each year. Conversely, the rapidly growing community of investors in Ucits III hedge funds want a more conservative risk / return profile which is more likely to deliver consistently positive returns, albeit at lower levels. In response to client feedback, from 1 September, the Melchior European equity long short strategy will be available to each of these investor groups with risk levels which are commensurate with each group’s tolerance for risk.”
