The Alternatrend Fund is a long/short fund of hedge funds
which invests in superior managers worldwide. The fund aims
to outperform the MSCI World Index signifiantly over the long-term
with lower volatility.
Interview with Charles E. Abrecht
- Can you describe what is unique about the Fairway
Group's investment philosophy as represented by the Alternatrend
Unlike most funds of funds managers, The Fairway Group
has an extremely focused investment approach, concentrating
on long/short equity managers in three strategic regions:
U.S., Europe and Asia. The fund is not strictly an absolute
return fund, but generates alpha by outperforming the
global equity benchmarks with significantly less volatility.
We have always viewed the global equity markets as the
best playing field for long-term capital appreciation.
Within this arena, our careful manager selection and
portfolio construction provides for a very favourable
risk/return pattern. We have always invested side-by-side
with our clients and believe deeply in our investment
approach, rather than offering "the hot product"
of the month, quarter or year. This commitment to our
fundamental principles has allowed us to build a solid
long-term track record, which has avoided the pitfalls
of difficult hedge fund markets of 1994, 1998 and 2000-2002.
- How are the underlying hedge funds selected?
Via a combination of quantitative and qualitative due
diligence processes, aimed at ascertaining the suitability
of a particular manager for investment at the fund level.
The main due diligence criteria are:
- Investment style and discipline
- Size and structure of assets
- Fee structure
- Investment process
- Risk control
- Communications and transparency
- Other tangibles and intangibles
- Structural issues
Can you describe your due diligence process and what
sort of models do you employ?
Using proprietary quantitative models, we conduct analyses
on the following:
- Absolute track record
- Relative track record
- Correlation to other managers in different market environments
- Volatility of returns
- Ability to preserve capital
- The "story" behind the numbers
- What about your qualitative processes?
Using a proprietary qualitative research site and the
full extent of our 45 years' industry expertise we gauge
- The quality of the people
- The values of the manager
- The manager's subjective view of the business
- The manager's financial commitment to the fund ("eat
their own cooking")
- The manager's ability to grow the organisation and
manage that growth
- Can we invest with these people? (= smell test)
- What strategies do you employ and where are the majority
of the funds invested?
The focus is only on the long/short equity strategy,
applied on a global, regionally diversified basis. Currently,
in the Alternatrend Fund the weightings are 37% Europe,
54% U.S., 7% Asia, and 2% Cash.
How long do you monitor a hedge fund before making
an initial investment?
The answer depends on the individual hedge fund. If we
know the manager(s) well from previous investments/funds,
the time period can be relatively short (1 month or less).
In the absence of any prior experience with the managers,
the initial due diligence period will take anywhere between
2 to 6 months. The challenge is to recognise good managers
early on, as they will close their funds relatively early
if they are successful. Our long experience with the qualitative
side of the due diligence helps us deal with this challenge.
- Generally how large are your initial allocations?
Historically at the Fairway Group, initial allocations
to a new manager range between US$500,000 and US$3,000,000.
Our maximum required capacity per manager is approximately
- How often do you visit the underlying managers?
At least once every semester or more often, depending
on our familiarity with the manager and the investment
approach. Questions cover the main due diligence categories
a) to k) outlined in Question #2.
And at least three meetings prior to investing, plus
follow-up due diligence on the firm and the supplier network.
Approximate minimum duration of initial due diligence
- one to three months.
Every following year: a) at least two visits; b) one
long telephone conversation every quarter; c) one or two
additional phone calls every month; d) ongoing due diligence
calls with providers; and e) checking notes with other
investors, with personal network etc.
What are your risk management processes?
Risks to be managed include a) leverage, b) lack of diversification,
c) liquidity, d) transparency, e) lack of downside protection
and f) all risks covered by the qualitative due diligence
process mentioned above.
- We avoid leverage at the fund level. We also pick
long/short managers who do not rely on leverage to generate
returns. We monitor exposure risk on a manager-by-manager
basis and on a fund level, using proprietary software.
At present, the fund is 90% gross long and 32% short,
i.e. 122% gross exposed and 58% net. The gross exposure
of the Alternatrend Fund is rarely above 125%, while the
individual managers' exposure rarely rises above 150%.
- The portfolio is diversified over 10 to 20 managers.
A single manager rarely exceeds 15% of assets under management
- All managers invest only in liquid securities. Funds
are not dependent on broker-dealers to price their portfolio
positions. Also, Fairway is rarely a significant investor
in a fund as measured against the fund's total assets.
We further avoid funds whose investor base is too concentrated.
Also Fairway has more liquidity within its fund (often
monthly liquidity, some daily) than it gives its investors.
- Transparency with long/short managers is better than
most other hedge fund strategies. Top ten or top 20 positions,
gross long and gross net exposure is received on a weekly
or monthly basis. On our on-site manager visits we get
full transparency of the portfolios.
- As part of our due diligence process, we ascertain
that the manager truly has the skill and the know-how
to provide downside protection in difficult markets.
- See above. Includes full transparency checks with
The Hedge Fund Administrators.
What distinguishes the Fairway Group from other fund
of fund managers?
- We (through the Stafford Fund, our initial fund of funds)
have an almost 11-year track record, applying a consistent
investment approach, within the same investment vehicle.
That is a longer track record than most funds of funds we
know of. In 2003, the Stafford Fund was shortlisted for
the European Fund of Funds award in the over 10-year category
(Best Long Term Achievement Award).
- Our funds tend to perform extremely well during adverse
market conditions, for example in 1994, 1998 and in the
- We are investors, not just marketers. We believe deeply
in our Global long/short equity approach and almost 100%
of our liquid assets are invested in the Stafford Fund,
the Stafford Global Equity Fund and in the Alternatrend
- We "stick to our knitting" and focus on
one area of the hedge fund world - long/short equity.
While this approach leads us to have more volatility and
correlation with the equity markets than many of our peers,
we believe that it also gives us more longevity. By avoiding
leverage, concentration, and illiquidity, we did not get
trapped in liquidity-driven hedge fund disasters such
as LTCM and its repercussions (1998).
- We are relatively small (€150 million in long/short
fund of funds). Our size allows us to concentrate on the
best managers. We believe that we can successfully grow
our strategy to approximately €500 million. Larger
fund of funds have to over-diversify (50 plus managers)
thereby diluting the performance of their best managers.
- The transparency in terms of gross and net exposure
is higher than many of our competitors, due to our focus
on long/short managers.
- We probably have a more concentrated portfolio of
managers compared to our peers.
- Our business network is extremely comprehensive as
a result of our years of experience (45 years in the investment
business, 11 in the funds of funds business) coupled with
the focus on a well-defined strategy. We also are less
likely to be swept up by the next hedge fund "fashion
of the week". We are not "trigger-happy"
and have trust the long-term benefits of our investment
research and due diligence.
And lastly can you give a little background on the
Charles E. Abrecht (Founding Partner) has held key
positions in international financial institutions since
1979. His professional background includes international
asset allocation and money management, global corporate
finance and mergers and acquisitions work at First Boston
and Brown Brothers Harriman & Co. in New York and at
Les Fils Dreyfus & Cie in Basel. With his expertise
in international capital and financial markets, Charles
has advised clients on investment strategies, international
corporate finance and M&A transactions. Charles has
an MBA from Harvard Business School (1983) and an economics
degree from the University of Basel (1979).
Francesco A. Andina (Founding Partner) has worked
in the field of global asset management and private banking
since 1973. With his diverse experience and knowledge
of global financial markets, as well as his understanding
of tax and estate considerations, Francesco has guided
many private clients and institutions in structuring and
managing their assets. From 1989 to 1991 he managed the
multi-billion dollar private banking division of Bank
Vontobel in Zurich. In the course of his career, Francesco
has opened and expanded branch offices in New York for
Bank Julius Baer and BIL Management Inc., a subsidiary
of Bank in Liechtenstein. Francesco has a law degree from
the University of Bern (1973).
Fairway Investment Partners
+41 1 225 7030