09/11/2011 Author: Will Wainewright

Hermes BPK Partners launches new long/short equity fund

Hermes BPK Partners, the $2.1bn fund of hedge funds (FoHF) manager, has launched a $550m long/short equity fund seeded by a single institutional investor, HFMWeek can exclusively reveal.

The firm would not confirm or deny that the investor is the BT Pension Scheme, with whom it has a long-standing relationship. The investment increases the size of Hermes BPK by over a quarter in asset terms.

Matteo Perruccio, the company’s CEO and founding partner, told HFMWeek the long/short approach was designed to help institutional investors “de-risk their long-only equity allocations” and offered an alternative to fixed income, which had become less “attractive”.

“The major challenge is that almost everyone is too exposed to equities,” said Perruccio. “The question is ‘what do we do?’ It is no longer the smart thing to bump up fixed income.” He described long/short equity funds as “a highly viable de-risking alternative”.

Hermes BPK has three existing FoHFs, including its $1bn multi-manager flagship, which have received significant funding from the £36.7bn ($58.7bn) BT Pension Scheme.

“Our close relationship with the scheme means we have a unique insight into the demands of large institutional investors and are well-placed to offer what they want,” said Perruccio.

However, the firm would not disclose the identity of the seed investor. The fund, Hermes BPK Global Equity Hedge Strategies, which currently runs between 8-12 managers and started trading last month, aims to capture two-thirds of market upside and one-third of its downside.

The portfolio is not taking a region-specific approach, instead focusing on managers which offer “non-correlation to each other,” said Perruccio. Performance fees will be paid if minimum returns are met or two-thirds of the market is outperformed.

Perruccio described it as a “fund of one” structure, whereby any other investor demanding the same product could open one in a different share class.

The launch comes during a difficult time for the FoHF industry, which has been hit by fresh criticism this year over returns and fees. 

But Perruccio maintained the sector has a unique role to play. “Most investors cannot match the level of expertise and resources we offer. This launch is an example of the industry adapting positively by partnering more with investors.”

This week HFMWeek spoke to FoHFs to gauge how they had fared in a tough year and found fund principals in a bullish mood about the future of their industry (see feature, p17).

Omar Kodmani, president at $21bn Permal Group, rebuffed accusations the sector is in decline, highlighting how assets had grown 10% over the last 12 months.

Chris Keen, co-founder at $600m Culross Global Management, said: “There are a lot of investors out there who don’t have the time to research and make the thorough checks we offer.”