Hedge funds gained their risky reputation after the failure of Long Term Capital Investments in the late 90s, says George Toubia a Sydney-based associate director for Macquarie International Capital Advisers.
"But the perception they are risky is wrong," says Toubia.
He says many of the strategies used substantially lower risk while offering high returns.
In a draft prospectus, Macquarie estimates that had Titan been operating over the past six year, its net annual return would have been 15.9%, similar or ahead of equity investments. However, the fund’s volatility is estimated at 4.3% over the same period, similar to that of bonds.
Despite the risky reputation of hedge funds Macquarie is targeting the Titan fund at ordinary investors, particularly those aged over 30. To this end the minimum investment has been set at $5000, relatively low for this type of product, and Macquarie is offering 100% finance.
The fund is capital guaranteed at maturity and is New Zealand-dollar denominated to reduce currency risk.
John Owen, who heads Macquarie’s New Zealand retail operations, says the financing option will be attractive to small business owners or other middle income earners who are asset rich but cash poor. Interest on the loan might also be tax deductible.
A tax ruling confirming that those who use the financing option will not face capital gains tax is expected from Inland Revenue Department shortly, he says.
The fund has an application fee of 3%. Annual costs to investors are; a 2% management fee; a 0.5% adviser fee; and a 1.25% capital guarantee fee.
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