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The fund will have a typical holding period of 10 days, a minimum of two and a maximum of 60 days, according to Swapnil Pawar, chief investment officer of Karvy Capital, the asset management arm of the Karvy group.
The fund will look to generate positive returns, irrespective of the market conditions, through use of multiple strategies, which will also make use of derivative instruments that make money by betting on market direction, according to a press release.
The fund will also look to leverage behavioral finance, a branch of finance that uses behavioral theory and psychology to explain stock market activity, according to Pawar.
“Our approach draws a lot from the principles of behavioral finance. We are continuously looking for market inefficiencies in the form of predictabilities. When we spot them, we build systematic strategies to use them to deliver absolute returns. By diversifying our investments across a large number of small trades across multiple strategies, we are able to contain risk on the one hand and achieve diverse sources of returns on the other,” he said.
The fund is called ‘Systematic Edge Fund’ and will be open-ended, which means that investors would be free to move in and out of the fund unlike closed-ended funds, which lock in investments for a set period.
The fund has been launched under the Securities and Exchange Board of India’s alternative investment funds regulations, which first created a framework for regulating hedge funds in March 2012. There are a total of 10 funds, which have received Sebi approval under Category III, the segment under which hedge funds are regulated, including Karvy, according to the Sebi website. The others include Ambit, India Infoline and Motilal Oswal.
Globally, the hedge fund industry has managed assets worth $2 trillion at its peak in 2008, according to a KPMG and the Alternative Investment Management Association (AIMA) report on the hedge fund industry released last year. Recent estimates suggest the hedge fund industry manages in excess of $2 trillion.
AIMA is a forum for alternative investment managers.
The report notes that the source for the new money which has come in to the global hedge fund industry since then also include the Asia-Pacific region (of which India is a part).
“New money injected into the industry since 2008 has come primarily from North America, Asia-Pacific and the Middle East, while allocations from the European Union have held steady and those from Switzerland have declined," said the report issued in 2012 and authored by KPMG partners Robert Mirsky and Anthony Cowell, alongwith Andrew Baker, the chief executive officer of AIMA.
