RYE, N.Y. (HedgeWorld.com) – The launch of OFI Tremont Core Diversified Hedge Fund and OFI Tremont Market Neutral Hedge fund marks a new type of registered hedge fund structure and an increased dependence on risk management and transparency tools in the hedge fund industry.
The funds are based on strategies that Tremont Advisers Inc.* has offered its clients on a discretionary basis for several years. OFI Tremont Market Neutral Hedge Fund’s will not allocate more than 20% of its net assets to managers that are not using market neutral strategies. The fund still will invest in a number of strategies including index arbitrage; interest-rate arbitrage; merger arbitrage; convertible bond and warrant hedging; statistical long/short equity strategies and pairs trading. Between 10 and 20 managers will be selected for the portfolio, according to the Securities and Exchange Commission filing.
The strategies of the OFI Tremont Core Diversified Fund’s underlying investment programs are: long/short equity; equity hedging arbitrage; fixed-income hedging and arbitrage; currency hedging and arbitrage; index arbitrage; interest-rate arbitrage; merger arbitrage; convertible bond and warrant hedging; statistical long/short equity strategy; pairs trading; event driven; and distressed issuer investing.
How the funds differ from their registered hedge fund of funds counterparts is that that they will be marketed to a group more sophisticated investors and investment consultants, said Rob Rosenbaum, senior vice president and director of the investment advisers group. The funds of funds are for tax-exempt institutions such as endowments, foundations and pension funds that traditionally invested in offshore hedge funds of funds to avoid unrelated business taxable income tax.
The new funds are structured as regulated investment companies under the Internal Revenue Code, which allows U.S. investors to avoid the UBTI they would normally have to pay if there were to invest in hedge funds through domestic limited partnerships. Both OFI funds are registered with the SEC as closed-end management companies.
We believe that these are the first domestically domiciled RICs targeted to U.S. tax-exempt investors. Tremont has a history of working with tax-exempt investors and specifically pension funds. Last year, the Teacher Retirement System of Texas and the YMCA Retirement Fund both retained Tremont to assist in their respective hedge fund allocations.
In working with institutional investors for institutional clients, Tremont officials are bypassing the lengthy educational process affiliated with individual investors and their advisers. Tremont estimates that there is between US$550 and US$600 billion invested globally in hedge funds. Less than 25% of that amount is from institutional investors, although institutions are predicted to devote a larger percentage of net asset flows to the business in the next several years.
The growth of the two new funds is expected to build slowly initially, but in the next two or three years officials expect to raise between US$2 billion and US$3 billion in assets. The funds were launched on Jan. 2 with US$25 million seeding each fund, Mr. Rosenbaum said.
(Tremont Advisers Inc. is a minority investor in, and strategic partner with, HedgeWorld.)
