LGT Capital Partners is a big believer in the merits of hedge funds and the advantages of putting some of these vehicles inside UCITS wrappers, but also adds its voice to those institutions warning that not all hedge funds are suitable for the UCITS structure.

LGT Capital Partners is a big believer in the merits of hedge funds and the advantages of putting some of these vehicles inside UCITS wrappers, but also adds its voice to those institutions warning that not all hedge funds are suitable for the UCITS structure.

The firm, which is owned by Liechtenstein’s LGT Group and originally known as the Liechtenstein Global Trust, has been investing in the alternatives space since 1996, so it already has picked up plenty of experience.

“We differentiate very strongly between UCITS products that make sense and those that are squeezed into a UCITS framework where they shouldn’t be,” Werner von Baum, partner at LGT Capital Partners told WealthBriefing at LGT’s offices in London’s Mayfair district. “If a fund does not have liquidity to be part of a UCITS format, there will be disappointment, particularly if it does not deliver returns,” he said.

He was responding to the question of whether some of the raft of UCITS “hedge fund lite” products may not live up to their promise of offering clients high liquidity during times of market stress. Hedge fund investors in 2008 and 2009 tried – not always successfully – to withdraw money but managers often imposed strict redemption penalties and long notice periods.  UCITS funds, by promising high standards of liquidity, can at first glance seem a much more reassuring place to put money.

But as von Baum says, it is vital for investors to scrutinise the strategy of a UCITS fund so that it can deliver on its promises. “It’s really important to make sure that underlying assets make sense in terms of the UCITS structure,” he said.

No less a figure than hedge fund big-hitter John Paulson, famed for correctly betting on the US sub-prime meltdown, is planning a UCITS-compliant product for European investors, for example. Dozens of UCITS products are now on the market. There have been concerns that the liquidity of underlying investments may not be sufficient to enable UCITS funds to promise daily liquidity. In response to such concerns, the UK-based Merchant Capital recently launched its UCITS Strategy Assessment/Feasibility Evaluation, through which managers with funds with established track records can see if their strategies will translate efficiently into a UCITS structure.

Service provider

LGT Capital Partners describes its fund of hedge funds business as predominantly that of a service provider for institutional clients. “We do look at private wealth management and that sector as a quasi-institutional group. They have the same outlook and attitude as professional players [such as pension funds and life insurers],” he said.

“To get approval to be accepted as a counter-party for these investments is similar to that for an institutional client – they want the same degree of transparency,” said von Baum.

LGT Capital Partners is already a sizeable alternative investment house: it has $19 billion of assets under management, of which $4.5 billion is invested in hedge funds and $14.5 billion is invested in private equity funds. The firm acquired KGR Capital (manager of Asian fund of hedge funds) in 2008 – a key part of LGT Capital Partner’s expansion plans. This acquisition has enabled LGT Capital Partners to expand in the UK both in the private wealth and institutional markets. The firm manages a total of three listed vehicles of which two are fund of hedge funds listed in London and one is a private equity fund of funds listed in Switzerland.

The firm’s flagship CTA/global macro fund of managed accounts is called Crown Managed Futures.  It aims to provide returns of 10-12 per cent over the mid- to long-term (3-5 years) and to add diversification to portfolios of traditional assets.

The Crown Managed Futures product is now available in the UK via a UCITS compliant structure, fees paid by the client are around 2.2 per cent (1.5 per cent management fee and a 0.7 per cent structuring fee).

“We think the product makes a lot of sense in a portfolio context as well as a returns context,” von Baum said.

Socially responsible investment

Socially responsible investment (SRI) is an important feature of LGT’s investment process, he said. “We realise that more and more of our clients see that as an important part of our investment routine,” von Baum said.

“The key is to increase awareness and show the investment world that these criteria [corporate governance and the environment] are becoming more important. It is up to us to help recognise and enforce that. The effect [on sustained investment returns] will only be seen over the medium term,” he said.