Titan two arrives

Macquarie, which is about to launch its second Titan hedge fund, believes there is still good demand for these types of investments, despite some of the gloss coming off the sector in recent months.

The head of Macquarie in New Zealand, Craig Swanger, says he has been worried that investors have been throwing money into hedge funds, chasing high returns, and often these funds have aggressive strategies.

He says that's a dangerous thing to do and that investors should instead be using hedge funds for portfolio diversification.

"One of the things which worries me a little bit is the lack of understanding about (hedge funds) and the different types."

"Diversification is what they should really be used for, rather than aggressive plays."

Macquarie is launching its second Titan hedge fund on Monday. The fund is similar to the one which was offered in the market earlier this year and raised $70 million.

It takes a fund-of-fund approach to investing, and offers the potential of attractive returns with a low volatility profile Also, there are potential diversification benefits through exposure to multiple strategies, markets and fund managers, Swanger says.

Swanger says it will have a capital guarantee, like Titan one, however that guarantee will finish after six years. The fund will keep running after the guarantee comes off.

He expects the next Titan fund won't have a guarantee. Originally the guarantee was put on the fund to offer investors a level of comfort with hedge funds. As they become more sophisticated and understand how these funds work the capital guarantee isn't necessary.

Titan two will be an open-ended vehicle as opposed to being a closed one like the earlier fund. The capital guarantee comes off after six years, but the fund will continue to operate.

Swanger says Macquarie has a draft tax ruling for the original Titan product, however it won't be chasing a ruling for the second fund.

Also returns will be boosted by amortising the upfront entry fee over three years.

Titan two will be New Zealand dollar denominated and the underlying investments will be currency-hedged back to New Zealand dollars, reducing unnecessary exposure to currency fluctuations.

Macquarie Property Finance Limited will offer to lend up to 100% for investments in Titan two subject to credit approval and terms and conditions. This offers: flexibility for advisers seeking to match their clients’ individual risk/return profiles and it appeals to investors who are income-rich and asset poor.

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