IDFC AMC has forayed into the alternative business with IDFC India Equity Hedge – Conservative Fund. This is IDFC’s first fund under AIF Category III.
This Category III AIF fund will follow a low net/market neutral risk framework, in keeping with its conservative character. It will target annualized returns between traditional fixed income and long-term equity, whilst striving to be largely uncorrelated to either asset class across market cycles.
The fund will seek to generate absolute returns with half the volatility of the Nifty; by primarily investing in Indian equities, derivatives, cash equivalents and arbitrage instruments. It will employ a range of sub-strategies, which together can potentially generate a steady stream of returns across bull and bear market cycles.
Long/short strategies involve both buying stocks as well as selling stocks (with the intention of buying them later at a lower price).
Commenting on the launch, Vishal Kapoor, CEO, IDFC AMC said, “We have launched this fund under our Liquid Alternatives division, which focuses on offering products that are liquid, unique and add value to the overall asset allocation of sophisticated investors in domestic and international markets.”
Kapoor told Cafemutual that the company would leverage its existing distribution strength to distribute this product.
Investors have two options – fixed management fee or lower management fee plus performance based incentive. Since the fund is a conservative hedge fund, the hurdle rate would be 300 bps above SBI Bank FD rate. This means, the company will get a proportion of outperformance if the fund delivers performance above the hurdle rate. Most companies charge 20% of such an appreciation.
On brokerage, Kapoorsaid that it would in line with industry standards.
(Typically, in AIFs, distributors get commission of proportion of management fee (40-60%) depending on the product, tenure and lock in.)
Vijay Krishna Kumar, Director- Liquid Alternatives, IDFC AMC, who will be managing the fund said, “In the investment world, just like any other business, the prospects for generating returns is a function of two factors - the available opportunity set and the number of entities competing for it. Both these factors are very attractive in India. Unlike most developed and large emerging markets, India has only a handful of Long/Short funds since a majority of portfolio managers are focusing only on traditional buy ideas.”
Kumar is an early pioneer in India Long / Short investing with an 11 year track record in India and a total investment experience of 18 years. He has won awards for ‘Best Emerging Markets Investor–India’ (2016) and ‘Best India Long/Short’ (2016) by AI Hedge for his previous group.
Earlier, the company had launched two venture capital funds much before AIF regulations came into existence.
