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Hilltop launches London-based FoHFs business and All Weather Fund

Monday, April 19, 2010
Opalesque Idnustry Updates - Independent fund management firm, Hilltop Fund Management ("Hilltop"), today announced the launch of its London-based business and its alternative fund of hedge funds approach. The All Weather Fund, managed by Rory Hills, is a fund of hedge funds designed to deliver consistent, absolute returns in all environments through a portfolio of uncorrelated hedge funds, unconstrained by investment style.

The All Weather Fund, domiciled in Gibraltar, will invest in approximately 15 underlying hedge funds diversified by investment approach and geography. Hilltop will pursue a bottom-up investment approach focused on fund selection rather than top-down asset allocation. The investment strategy of each underlying fund will be distinct and sufficiently differentiated to exhibit low correlation to the other funds to provide a genuine diversification solution.

The Fund's fee structure is designed to be more fully aligned with investors' interests. Hilltop believes that performance fees based on an annual calculation is too short a period to genuinely assess manager skill. Hilltop's performance fees will instead have a three year high watermark and remain fully at risk throughout this period. Additionally, the Fund utilises a progressive hurdle rate, which increases over time depending on an investor's duration in the fund.

Hills, Founding Partner and Portfolio Manager said, “Investors in fund of hedge funds have largely been let down: they thought they were buying uncorrelated, absolute returns but received the opposite in the crisis: highly correlated, negative returns. In 2008, over a third of single managers were up (according to Eurekahedge) yet more than 97% of diversified fund of hedge funds were down (BarclayHedge). Almost all fund of hedge funds failed to do their job during the crisis in identifying the winners from the losers."

Hills has a proven track record in selecting successful hedge funds and 23 years of experience working with fund managers. From 2002 to 2009, he was a director responsible for hedge fund marketing at Dexion Capital, where he held an estimated 1,000 meetings with fund of hedge fund managers. During the core crisis period from July 2007 through February 2009, of the nine funds Hills selected to represent to hedge fund buyers all nine were up, and four of them by more than 30%. The approach used to select these uncorrelated funds is now being made available to investors via the All Weather Fund.

Stephen Hedgecock, Principal at Altis Partners commented, "I, together with my fellow Principals at Altis Partners, am delighted to be investing in the Hilltop All Weather Fund from the start. We have known Rory since he first came to scrutinise us in 2003 and have been watching him ever since. His vision and drive, combined with a real skill for identifying talented fund managers is a great recipe for managing the All Weather Fund. We have no doubt that he will be able to provide investors not only with superior risk-adjusted returns but importantly returns which demonstrate low correlation to their other investments.”

Rory Hills continued, “Over the past few years the fund of hedge funds industry has become ‘institutionalised’, with many players converging upon a similar, and in our opinion, flawed investment approach which attempts to replace skill in selecting alpha producing managers and strategies with a formulaic process.

"This process, starting with top down asset allocation, places too much emphasis on trying to predict which strategies might do well in the short term and not enough on trying to find talented managers who can perform well in all environments. This box-ticking approach has created an unhealthy bias towards large, mainstream managers, with around 75% of industry assets managed by barely 3% of managers[1][1].

"The result is an investment approach far more likely to produce ‘hedged’ rather than ‘absolute’ returns. This is a critical distinction in the context of understanding how hedge fund investments fit into a broader portfolio and yet it is a distinction which has become blurred over the past few years as the hedge fund industry (erroneously) became known as the absolute return industry."

Hilltop will instead focus on identifying talented managers, whose distinctive, alpha-producing strategies will be additive to the All Weather Fund. The rationale for well managed fund of hedge funds remains compelling – specialist firms with experienced and talented staff, focused on delivering uncorrelated, absolute returns that can add real value and diversification to a broader portfolio. Hilltop believes The All Weather Fund is better designed to deliver the return profile investors expect from fund of hedge funds. Corporate website: Source

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