While the portfolio consistently has a weighting to each strategy, the allocation between these strategies is opportunistically rebalanced. This dynamic approach also means that return drivers will vary according to market conditions. For instance, directionality drives returns in a rising market while, in more volatile markets, returns are driven more by the hedged portion of the fund. Credit risk is something that the fund will take selectively, based on the manager’s long experience in credit analysis. As Europe’s largest synthetic credit manager (with assets over $50 billion), Cheyne’s expertise includes investment-grade credit, event driven and real estate debt, supporting this assumption of credit risk by the fund. Portfolio manager Akin Akinloye has 16 years of convertible bond management experience, including the management of Cheyne’s convertible bond funds from the firm’s inception in 2000. Akinloye’s history with Cheyne founders, Jonathan Lourie and Stuart Fiertz, extends even further back to 1994, when the trio worked together at Morgan Stanley.The UCITS III label seems almost semantic, since the superseded offshore fund followed the same strategy, operating with a profile in keeping with UCITS III broad regulations for its nine-year life. According to Akinloye, “The decision to offer the strategy in a UCITS wrapper was to enable the widest possible investor base access to Cheyne’s convertible expertise”. To answer asset class liquidity concerns, Akinloye says the “belly” of the $600 billion convertibles market has ample liquidity for this strategy to accommodate a €600 million target for a capacity review.
Regarding risk management, Cheyne’s own 150% cap on gross exposure is somewhat tighter than the 200% limit for “simple” UCITS. Empowering its risk management team with veto power and insisting they report to the board independently are further safeguards that go beyond the UCITS requirements.
The fund’s performance in 2010 was +10.7% and up to the end of March this year, the fund is up 4.4% in the base EUR class. USD and GBP classes are also available. Liquidity is provided fortnightly and additionally on the final business day of every month.
Key details
Fund name: Cheyne Convertibles Absolute Return Fund
Management company: Cheyne Capital Management
Promoter: Cheyne Capital Management
Status: Open
Inception date: 1st December 2009
Strategy
Kind of fund: Absolute Return
Strategy group: Long
Region: Global All
Asset classes: Equities, credit, convertible bonds
Particulars
Currency: EUR, USD, GBP
Share class name: Class S2 EURO
ISIN: IE00B4MBZ034
Bloomberg ticker: CHSCNIE ID
Domicile: Ireland
Listing: Irish Stock Exchange
Fund structure: Investment Company with Variable Capital
NAV calculation: Daily
Liquidity: Weekly
Day (if not daily): Friday
Notice (banking days): 3
Minimum investment: 100,000
Minimum retail: 5,000
Min. investment currency: USD
Income: Accumulative
Fees
Entry fee: 0%
Exit fee: 0%
Management fee: 0.75%
Performance fee: 10%
High water mark: Yes
Crystalisation: Quarterly
Hurdle rate: Yes
Analysis
2010 return: 10.69%
Annualised return: 10.71%
Annualised volatility (monthly data): 6.43%
Sharpe ratio (2%) (monthly data): 1.35
Correlation to S&P 500 (monthly data): 84.22%
Correlation to iBoxx (monthly data): -38.38%
Service providers
Administrator: J.P. Morgan Administration Services
Custodian: J.P. Morgan Bank
Auditor: KPMG
Lawyer: Mason Hayes Curran
