Aviva Funds launches fund of hedge funds

Article date: 15 July 2003

Aviva Funds International Ltd, the European fund operations ofMorley Fund Management, has launched the first sub-fund of itsAviva Alternative Funds SICAV on 25 June 2003; Aviva AlternativeFunds – Alpha Optimum (“Alpha Optimum”). AvivaAlternative Funds is a Luxembourg-domiciled fund of funds investinginto hedge funds and is structured as an umbrella fund withmultiple sub-funds.

The investment manager of Aviva Alternative Funds is Morley FundManagement (“Morley”), the asset management company ofAviva plc, which as a group has worldwide assets under managementin excess of Euro 340 billion. For the Alpha Optimum sub-fund,Morley has contracted Paradigm Partners NW Inc, trading asBenchmark Plus (“Benchmark Plus”), a privately ownedalternative asset management company based in Tacoma, Washington inthe United States as portfolio manager. Benchmark Plus foundersMike Dunmire and Robert Ferguson have used their combinedexperience of more than 30 years exclusively devoted to alternativeinvestment strategies, to create a unique investment approach,which has delivered a "pure alpha generator".

Aviva Alternative Funds – Alpha Optimum is a fundof hedge funds that seeks to achieve high returns independent ofthe movements in the equity or fixed income markets. Morley aims tocreate a high risk-adjusted rate of return by investing in aportfolio of hedge funds, as selected by the portfolio managerBenchmark Plus, that have a proven history of generating excessreturns on a risk-adjusted basis (Alpha). Morley will be workingclosely with Benchmark Plus to provide resources on quantitativeanalysis, asset allocation and derivatives hedging in order tocontinually maximise risk-adjusted returns for the fund. Morley andBenchmark Plus will be forming a joint Investment Committee tooversee and approve all investment decisions for the fund.

Alpha Optimum will be available in two Share Classes;Institutional Share Class and Private Share Class. TheInstitutional share class will be targeted at larger institutionalinvestors, pension funds, insurance companies, asset managers andasset allocators. The Private share class will be targeted atprofessional investors. The minimum investment amount for theInstitutional Share Class is Euro 1 million and for the PrivateShare Class is Euro 25,000. The Fund will be denominated in Euros,and non-Euro holdings will be hedged into euros by Morley.

What are the key benefits of Alpha Optimum?

  • The portfolio managers believe that future macro-economicevents and their effects can not be predicted with greater successthan the consensus;
  • The investment process therefore focuses on ALPHA rather thanreturns;
  • The investment process aims to identify, isolate andneutralise systematic risk, resulting in a pure alphagenerator;
  • Multiple levels of risk control minimise the likelihood of asignificant drawdown in any market climate;
  • The result is high returns with zero Beta.

Commenting on the launch, Raoul Bachmann, Continental EuropeanRetail Director at Morley Fund Management, said: “We are veryexcited by the launch of this fund which marks an important step inthe evolution of our product range to embrace both fund of fundstructures and alternative investments. The portfolio manager ofAlpha Optimum sub-fund, Benchmark Plus, achieves strong performanceby hedging the market risk of the underlying funds, therebygenerating pure Alpha. This makes Alpha Optimum one of the fewfunds that actually lives up to the term ‘HedgeFund’.”

Commenting on the demand for such funds in the institutionalmarket, Raoul Bachmann added: “Many institutions in Europehave allocated significant proportions of their assets toalternative products over the past three to four years asdiversification opportunities in traditional equities and bondshave reduced. Pension fund managers in the US have beensuccessfully investing in hedge funds for some time and we believethat the trend to follow suit in Europe is likely tocontinue.”

Commenting on the appointment of Benchmark Plus Partners asportfolio managers, Neil Smith, director of Aviva AlternativeFunds, said: “We carried out an extensive review of fund ofhedge fund managers globally. Benchmark Plus fulfilled all of ourselection criteria; sustainable strong investment performance basedon absolute and risk-adjusted returns, a clearly defined investmentprocess with robust management of risk and strong commitment bytheir management; and they impressed us with innovative approach indesigning their investment process. The track record of BenchmarkPlus is outstanding. We are buying into a process that has shownannualised returns of 16.7%, annualised volatility of 5.6% and adownside deviation of 1.08% from the risk free rate of return (90day Treasury Bill) during the period 1996 through March 2003.(source: Benchmark Plus). In addition the returns have virtually nocorrelation to any major financial index. We are extremely proud tobe able to link the skills that Benchmark Plus possess with thequantitative risk management and governance framework that MorleyFund Management offers, and we look forward to conferring thesebenefits on our clients.”

For more information, visitwww.avivafunds.com/alternativefunds


For further information:

Stephen Roberts, head of European Retail Marketing
tel: +352
fax: +352
e-mail: stephen.roberts@avivafunds.com
GSM: +352 021.265.611

Notes to editors:

  • The value of an investment in Aviva Alternative Funds can fallas well as rise. The investor may not get back the original amountinvested. Past performance is not a guide to future returns.
  • Aviva Funds International Limited is the marketing anddistribution agent for Aviva Alternative Funds.
  • Morley Fund Management Limited is the investment manager ofAviva Alternative Funds and is a member of the Norwich UnionMarketing Group, members of which are regulated in the UK by theFinancial Services Authority for life assurance, pensions andinvestments. Morley Fund Management Limited and Aviva FundsInternational Limited are Aviva companies.
  • Aviva is the UK's largest insurance group, one of the top-fivelife insurers in Europe and has substantial positions in othermarkets around the world. Aviva is the world’sseventh-largest insurer based on worldwide gross writtenpremiums.
  • Aviva’s principal business activities are long-termsavings, fund management and general insurance, with worldwidepremium income and investment sales from ongoing business of morethan £28 billion, and over £200 billion in assets under managementat 31 December 2001.

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