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The Club recently extended the its use of hedge funds within its portfolio. This represents a vote of confidence for alternative assets as it plays an increasingly prominent role in portfolio construction. Through the use of a combination of swaps and fund of hedge funds, the Club synthetically constructed a bond portfolio that could potentially deliver excess alpha over its traditional fixed income mandate. The Club carefully analysed the risks associated with the implementation of this strategy and decided to deploy it in phases. While new in the region, alpha transport strategies have gained mainstream recognition in the US and Europe as a more efficient means of generating excess alpha versus traditional portfolio management.

BlackRock was selected to implement the strategy by leveraging its existing fixed income capabilities as well as its alternative expertise acquired through its recent purchase of Quellos Capital Management. It is believed that the mandate is worth in excess of USD200MM and is the first of its kind in Hong Kong.

Industry sources pointed out that the HK Jockey Club had been monitoring for over two years. Given the development that had taken place in the market, the pricing of the Lehman Global Agg total return swap was regarded as attractive enough to make the economics work in the investor's favour. This kind of structure may set a trend going forward, one source added.......................

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