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Hedge Plus aims for 18% each year

The latest investment from OM Strategic is the first to use hedge funds and is aiming for an average annual return of 18% a year.

Tuesday, October 9th 2001, 2:22PM

Background

The OM-IP series of investment fund companies is sponsored by OM Strategic Investments Limited, a subsidiary of Man Group Plc. Man Group launched the original IP 220 funds in Europe over 10 years ago.

They have received positive reviews in the international financial press, subscriptions for over US$550 million from nine international issues and over A$450 million from six issues in Australia and five in New Zealand.

The issues in NZ and Australia have varied only slightly in terms of management resulting in some differences in return over comparable periods. Not all are '220' series funds and the latest issue now available is known as OM-IP Hedge Plus Ltd.

This new product which is capital guaranteed, and based on historic performance, is targeted to produce an annual return of around 18-20% annually.

Management

The OM-IP funds typically derive their returns from the performance of two leading international fund managers.

The core investment is the AHL Diversified Program, which is managed by E D & F Man investment products in London. This program identifies opportunities to profit from price movements in more than 100 international markets and has produced a compound annual return in excess of 18% since December 1989.

A second investment in the Glenwood Multi-Strategy Program is made possible by a loan arranged by E D & F Man.

The amount of the loan varies from issue to issue but is for up to 60 cents for each A$1.00 invested.

Managed by the US based Glenwood Financial Group, the program accesses the expertise of more than 80 of the world's leading specialised fund managers.

The latest issue also incorporates the MIP Global Equities Program as part of the loan advance. This program was also developed by the Chicago based Glenwood Group and has since 1991 produced a very attractive compound rate of return with very low volatility.

There is therefore three separate trading programs in Hedge Plus.

Two Part Guarantee

The OM-IP funds also provide the security of a Westpac Guarantee.

This consists of a capital guarantee which ensures investors will receive a minimum of A$1.00 for each share they hold at maturity date and as an added benefit, a rising guarantee which locks in 50% of the trading profits generated each financial year.

Tax Efficiency for New Zealand Resident Investors

Historically, these funds (companies) have been registered in an offshore, low/zero tax jurisdiction and fall under the New Zealand Foreign Investment Fund (FIF) regime.

Due to recent changes in New Zealand tax laws, NZ taxpayers have an increased exemption from returning income in compliance with the FIF regime. This is now $50,000 per person. The $50,000 exemption level applies to the acquisition cost (initial investment amount).

For most investors (natural persons), this makes the OM-IP series very attractive from a tax perspective.

Realisation of capital gains under the current tax rules is unlikely to attract tax for most investors who are not traders - or in the business of trading such investments.

 High Return Objective

The key objective for previous series is an annualised return over the life of the investment of 20% annually.

Most of the previous offers have achieved this or come relatively close in NZ dollar terms - to 31st August 2001.

Hedge Plus has a target return of 18% pa over the period to maturity which is 30 June 2011. Shares may be sold or transferred prior to this date for the investment value at that time.

 

OM-IP Returns Table

Name and Issue Date

NZD Cost
of 10,000
shares

NZD Value
10,000 shares 31/08/01

Return since Inception %(NZD)

Annualised

Return % pa
(NZD)

OM-IP 220 Ltd - Aug97

11,486.33

26,339.43

129.31

22.53

Series 2 OM-IP 220 Ltd - Dec97

11,108.64

23,313.14

109.86

21.85

Series 3 OM-IP 220 Ltd - Jun98

11,661.81

19,584.77

67.94

17.28

OM-IP 320 Diversified Ltd - Dec98

12,010.57

14,687.07

22.28

7.59

OM-IP Strategic Ltd - Jul99

12,548.63

15,474.66

23.32

10.14

OM-IP Strategic Ser. 2 Ltd - Dec99

12,451.75

15,489.11

24.39

13.28

Series 4 OM-IP 220 Ltd - Jun00

12,542.33

16,199.62

29.16

22.73

Series 5 OM-IP 220 Ltd - Jan01

12,569.13

12,659.11

0.72

-

Series 6 OM-IP 220 Ltd -

12385.59

12,586.86

1.63

-

  • Annualised compound return equivalent (IRR)

The returns above are calculated after all fees and, for most NZ personal investors, the capital return to date would also be on an after tax basis.

These investments have a life of approximately 9 years each, after which they are wound up and the return distributed to the investors. Accordingly, assessment after just a few years could be somewhat premature. Nevertheless, to date the claims do not appear unreasonable.

It is also notable that similar programmes (same managers) launched in the early 1990s has achieved the 20% pa target.

Low Correlation with other investment classes provides very useful diversification.

These investments have exhibited relatively low correlation with other markets. For example, if world markets have been declining, then we should expect returns from the OM-IP investments to have a lesser rate of decline or they could be rising in value.

Recent gains made by the funds in the face of declining global markets also provide evidence that these investments tend to have a low relationship with returns from other markets.

This material has been prepared by Money Online

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