18 Oct 2010
By Bill McIntosh
The CQS Diversified Fund is to list on the main market of the London Stock Exchange in early December in a move that could dramatically boost its $160 million in assets under management. The launch comes amid of a flicker of life in the closed-ended listed hedge fund sector following the unveiling of plans last week by Brevan Howard to list a credit strategies fund.
CQS Diversified is an actively managed fund of CQS-managed funds run by senior portfolio manager James Peattie. CQS Diversified invests in five strategies run by the fund manager: the CQS Convertible and Quantitative Strategies Fund, CQS Directional Opportunities Fund, CQS ABS Fund, CQS Asia Fund and CQS Credit Long/Short Fund. Strong performance in recent months has helped CQS assets rise to $8.2 billion at October 1.
The Diversified Fund has returned 15.67% over the last 12 months and 10.18% annualised since inception in March 2007. CQS believes that there is an excellent current opportunity set in specialist convertible and credit strategies as volatility in credit and equity markets and ongoing dispersion of credits are creating attractive idiosyncratic opportunities.
Unlike hedge funds of funds, CQS Diversified has no additional layer of fees beyond the management and performance fees charged by its constituent single manager hedge funds. The new listing will seek to tap into the investor support that has seen BlueCrest Capital Management’s AllBlue multi-manager fund raise over $750 million this year through new share issues.
The success of BlueCrest and Brevan Howard to attract investors to listed hedge funds is a reflection of their strong investment performance. This has seen the funds trade near, or sometimes above, net asset value at a time when most listed funds of funds, which have higher fees and have turned in lacklustre performance, have sunk to in some cases substantial discounts to NAV.
Peattie, the fund’s portfolio manager, has a 25 year track record trading convertibles and risk arbitrage with firms as varied as LF Rothschild and Unterberg & Tobin. He knew Hintze when the CQS founder was honing his trading skills at Goldman Sachs. Peattie then moved on to do risk arbitrage and trade interest rates, convertible bonds and derivatives at Oppenheimer where he eventually headed the international arbitrage desk. Later at Smith New Court, Peattie saw a gap in the market and moved into a research role in convertibles leading him to comparative analysis of different asset classes.
Next a three year stint running the global convertibles business at Dresdner Kleinwort Wasserstein preceded Peattie moving to CQS in 2003. In setting up the Diversified Fund in 2007, Peattie aimed to combine the relatively small convertibles asset class with other asset classes to develop an efficient frontier – the place on a risk/return curve where minimum variance and maximum return intersect.
In modelling forward, Peattie takes a view on what risk each fund is taking and the opportunity set for the strategy, and adjusts exposures. What’s more, because all the funds are CQS products the risk platform for each underlying fund is the same.
Like other listed hedge funds, CQS Diversified will invoke a continuation vote if an average annual discount of 5% or more occurs during any rolling 12 month period. There will also be authority for the fund’s independent board of directors to buy back up to 14.99% of the fund’s issued shares.
RBS Hoare Govett is book runner for the listing. The cost of the listing is capped at 1% of gross float proceeds, meaning that the single class of sterling denominated shares issued at £1.00 will open with an NAV of £0.99.
The CQS Diversified Fund is to list on the main market of the London Stock Exchange in early December in a move that could dramatically boost its $160 million in assets under management. The launch comes amid of a flicker of life in the closed-ended listed hedge fund sector following the unveiling of plans last week by Brevan Howard to list a credit strategies fund.
CQS Diversified is an actively managed fund of CQS-managed funds run by senior portfolio manager James Peattie. CQS Diversified invests in five strategies run by the fund manager: the CQS Convertible and Quantitative Strategies Fund, CQS Directional Opportunities Fund, CQS ABS Fund, CQS Asia Fund and CQS Credit Long/Short Fund. Strong performance in recent months has helped CQS assets rise to $8.2 billion at October 1.
“This is an exciting and significant new development for CQS,” said Michael Hintze, CEO and Senior Investment Officer of CQS. “The company’s proposed listing on the LSE will provide investors with access to a differentiated convertible and credit-focused investment company which invests in a range of CQS-managed hedge funds."
The Diversified Fund has returned 15.67% over the last 12 months and 10.18% annualised since inception in March 2007. CQS believes that there is an excellent current opportunity set in specialist convertible and credit strategies as volatility in credit and equity markets and ongoing dispersion of credits are creating attractive idiosyncratic opportunities.
"We believe a multi-fund approach is well suited for this type of investment and should complement the existing choice that investors have in the listed funds sector," said Hintze. "We believe our fundamentally-driven investment process positions us well to continue to take advantage of opportunities in credit and equity markets.”
Unlike hedge funds of funds, CQS Diversified has no additional layer of fees beyond the management and performance fees charged by its constituent single manager hedge funds. The new listing will seek to tap into the investor support that has seen BlueCrest Capital Management’s AllBlue multi-manager fund raise over $750 million this year through new share issues.
The success of BlueCrest and Brevan Howard to attract investors to listed hedge funds is a reflection of their strong investment performance. This has seen the funds trade near, or sometimes above, net asset value at a time when most listed funds of funds, which have higher fees and have turned in lacklustre performance, have sunk to in some cases substantial discounts to NAV.
Peattie, the fund’s portfolio manager, has a 25 year track record trading convertibles and risk arbitrage with firms as varied as LF Rothschild and Unterberg & Tobin. He knew Hintze when the CQS founder was honing his trading skills at Goldman Sachs. Peattie then moved on to do risk arbitrage and trade interest rates, convertible bonds and derivatives at Oppenheimer where he eventually headed the international arbitrage desk. Later at Smith New Court, Peattie saw a gap in the market and moved into a research role in convertibles leading him to comparative analysis of different asset classes.
“Decomposing convertibles is difficult,” Peattie told The Hedge Fund Journal in an interview in late 2009. “There are lots of moving parts and extra value that can be extracted. You have to know a bit about debt, and a bit about equities, currencies, credit and rates. You’ve got to know a bit of everything.”
Next a three year stint running the global convertibles business at Dresdner Kleinwort Wasserstein preceded Peattie moving to CQS in 2003. In setting up the Diversified Fund in 2007, Peattie aimed to combine the relatively small convertibles asset class with other asset classes to develop an efficient frontier – the place on a risk/return curve where minimum variance and maximum return intersect.
“That was part of the research I had done.” he said. “When people asked what we would do about asset allocation Michael knew what I could do and asked me to take a look at it and to apply my knowledge to the funds we manage.”
Peattie also had hands-on experience with a range of hedge fund strategies. “Michael came to me to design this and get it to work because I had the skill set to do it,” said Peattie. “He put a lot of trust in me to get on with the job and make it happen.”Through optimal allocation and combining short and long-term factors, CQS Diversified is designed to deliver lower risk rather than an average risk of the underlying funds. The risk and reward of each fund is plotted over time and forward modelled. That historic data is combined with a Black-Litterman model and Peattie’s proprietary efficient frontiers model to consider various combinations that optimise the return while limiting as much as possible the risk.
In modelling forward, Peattie takes a view on what risk each fund is taking and the opportunity set for the strategy, and adjusts exposures. What’s more, because all the funds are CQS products the risk platform for each underlying fund is the same.
Like other listed hedge funds, CQS Diversified will invoke a continuation vote if an average annual discount of 5% or more occurs during any rolling 12 month period. There will also be authority for the fund’s independent board of directors to buy back up to 14.99% of the fund’s issued shares.
RBS Hoare Govett is book runner for the listing. The cost of the listing is capped at 1% of gross float proceeds, meaning that the single class of sterling denominated shares issued at £1.00 will open with an NAV of £0.99.
