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It's been a long-standing grouse of fund managers in India that billions of dollars that come into Indian markets are managed from either Hong Kong or Singapore. This might change if Indian fund managers prove their mettle in sophisticated investment strategies that long-short funds deploy. After the Securities and Exchange Board of India allowed Indian entities to set up domestic hedge funds, Ambit Investment Advisors has come up with such a sophisticated long-short fund for high networth Indians and corporates. Andrew Holland, CEO of Ambit Investment Advisors, talks to Malini Bhupta and Vishal Chhabria on key aspects of this fund and its track record so far.
You have recently received an approval from Sebi for an alternative investment fund (AIF). We believe many others have been granted approval for similar funds, what is your fund all about?
Last year, SEBI allowed market participants to start domestic hedge funds. Consequently, Ambit Investment Advisors has launched a domestic hedge fund which will be focused on equities. Our aim is to generate absolute returns taking both short and long positions based on an actively managed portfolio approach.
What kind of investors can invest in this fund?
High net worth individuals, companies and family offices are our target audience given the sophistication of the product and that the minimum investment limit is Rs 1 crore.
What kind of liquidity will this fund offer investors?
The fund will offer monthly liquidity to investors for investment and redemption.
What will be the fee structure of this fund?
Investors will have two options. Under the first option they would pay a management fee and performance fee whilst the second option would entail no management fee but a higher performance fee. In both options, however, the performance fee would kick in only after a minimum threshold of upto 10% returns has been achieved.
How different is this from a portfolio management services offered by wealth management firms?
Portfolio management services products have traditionally been long only products based on themes and many were set up before the financial crises. The ability to use any form of hedge in these products is severely restricted and in our view this is where the competitive advantage of alternative investment funds like ours lies.
Why is it important to have a long-short fund?
Given the volatility of markets over the past 5 years, the ability to hedge has enabled us to make very strong returns in both rising and falling markets and consistently on a monthly basis. Our fund aims to make strong positive absolute returns irrespective of the market performance.
One complaint most fund managers have is that most of the FII money that comes to India is not managed here. Do you think this will change with funds like yours?
We hope so. We have an outstanding track record and once we see RBI allowing foreign investors to invest in AIF and also the tax authorities giving them equal treatment as coming from other jurisdictions, we would see great traction in our fund raising utilising our global JV partners.
In certain months, however, your fund has underperformed the benchmark Nifty index. What went wrong?
As we look to produce absolute returns we do not benchmark ourselves against any index. That said there will be occasions where we underperform the market in a month and typically this would happen in a rapidly rising market as our hedges would lose money on the way up. The important part to note though is that we still make a positive absolute return.
Please tell us about your strategy?
We believe both local and global macro calls and stock selection are important sources of alpha in our long-short strategy. Our preference is for long short themes rather than pair trades. Liquidity is an important element in return optimisation and risk management.
Our liquidity screener isolates large caps with sufficient liquidity so that entry and exit is smooth without much impact costs. Our focus would be the top 200 stocks, primarily the ones available in F&O segment. Though we don't rule out special situations where we could also make investments beyond these companies.
Apart from sectoral and stock specific caps, there will be a 15% final loss limit to every investment. Each long trade will also have a target price, which we will continuously monitor. There will also be limit for the leveraged positions. We derive confidence from our successful management of this strategy for 8 years in Indian markets, where we have witnessed all kind of markets.
How will the tax component work out for investors?
The trust will pay tax as per business income, so when an investor redeems he will receive his funds net of tax.
