Montier Partners

Uniform approach to management yields dividends

Stuart Fieldhouse
Originally published in the July/August 2006 issue

Fund of funds manager Montier Partners has been celebrating the first birthday of its High Alpha fund of funds offering, particularly as the fund managed to exceed its target returns over its first 12 months of trading. It achieved +25.7% in the US dollar class, +23.3% in the euro class, and 26.2% in sterling. The celebrations also mark a decade in business for the fund of funds specialist, which was set up by founder Dominique Montier 10 years ago.

The latest Montier fund grew out of Montier's hedge fund portfolio investment philosophy, already propounded by its older hedge fund of funds products, that portfolios of hedge funds can provide an attractive and valuable alternative to traditional asset classes, particularly in times of high volatility. "As such, we believe that a client's net liquid assets should have a meaningful allocation to hedge funds," says Dominique Montier, the firm's Chief Executive and a director of Montier Asset Management.

Montier High Alpha is a multi-strategy fund of hedge funds which invests globally in around 20 hedge funds; it was launched in May 2005, with the aim of targeting a higher level of return, yet retaining the same rigorous research driven process that the firm applies across its other funds. It targets annualised returns of 15-18% net of all fees, with volatility budgeted at 6-9%. The fund is also available as a closed-ended feeder fund to provide capital gains tax treatment for UK tax residents. Montier set out in 1996 with a mission to blend different investment strategies and geographical exposures of hedge funds into portfolios of funds that participate in rising markets, while preserving capital in difficult environments. Research is the foundation stone of the firm's fund selection process, which is conducted internally, and requires a high level of personal interface betweenthe firm and the managers it invests with. Montier is assisted in this evaluation process by his colleagues Jeremy Alun-Jones and Patrick Wills. "We purposely avoid exposure to volatile, opaque, illiquid, or highly leveraged strategies," says Alun-Jones.

Considerable emphasis is placed on qualitative criteria, notably the manager's experience and his approach to risk management. Statistical interpretation of performance gives an additional objective check on Montier's qualitative judgements. The firm also demands a high degree of transparency from the managers it invests with so that it can monitor the portfolio profile, style consistency, and adherence to investment guidelines. "We have a low allocation to global macro and CTA funds, and no exposure to convertible bond arbitrage or traditional mortgage backed securities funds," Wills adds.

With a decade of trading now under its belt, Montier has been able to capitalise on its established relationships with some of the more seasoned hedge fund businesses out there. Its asset allocation model, which is the basis of its client portfolios, has generated competitive returns against a low level of volatility. A private firm, it says it tries to align its interests closely with those of its clients. Its investment research is used to actively manage client portfolios without strategy or style prejudice, and its independence lets its maintain a long term and unbiased perspective.

Montier acts as investment adviser to its sister company, Montier Asset Management Limited, in Guernsey. MAM manages a number of bespoke hedge fund portfolios for individual clients, families, trusts and pension funds through segregated accounts, as well as via its three open-ended funds of funds. It takes a uniform approach to the way it assesses and monitors the hedge funds it invests in.

Montier's Funds of Funds:

Montier Multi-strategy Fund of Funds: Targets returns of 8-12% p.a. net of all fees, with annualised volatility of 3-5%, by investing in 35-40 underlying funds across a range of conservative hedge fund strategies. The portfolio is actively managed, with a relatively high allocation to Asia, including Japan, and a broadly equal geographical allocation between the US, and Europe. The fund was launched in June 2000 using the same investment philosophy that had been deployed with the firm's separately managed accounts since 1996.

Montier Long/Short Equity Fund of Funds: This vehicle restricts itself to just one strategy: long/short equity. It invests in 18-25 hedge funds across the globe, and targets returns of 10-15% p.a. net of fees, with volatility in the 4-6% range.

Montier High Alpha: Its newest fund, High Alpha aims to capitalise on the firm's track record of delivering consistent returns, encapsulating that in a higher performing absolute return vehicle. High Alpha invests in a diversified portfolio of 18-25 hedge funds that the investment manager believes can deliver annual returns of 15-25%. High Alpha's portfolio has been constructed in the expectation of average annual returns for investors in excess of 15% (net of fees) with volatility of 6-9% p.a.

Both the Multi-Strategy and High Alpha funds have closed-ended feeder funds. Both are designed to generate capital gains for UK tax residents. Unlike other closed-ended, listed fund of hedge fund structures, they are listed in the Channel Islands, allowing Montier to issue new shares on a monthly basis when the demand is there. The returns of the feeder funds are expected to be similar to those of the underlying master fund in which they invest, as the costs associated with these structures have been kept low. All Montier funds are SIPP eligible and are available for monthly subscription and quarterly redemption.

Who is Montier Partners?

Dominique Montier, Chief Executive: Prior to establishing Montier Partners, Dominique was a Director with Lehman Brothers in Paris, and an Executive Director with Lehman Brothers in London. In his pre-Lehman days has was an Executive Vice President with PaineWebber Inc, which he joined in 1977.

Jeremy Alun-Jones, Managing Director: Alun-Jones has been working in the investment world for 25 years, most of it as an equity research analyst with Cazenove, Salomon Brothers, and Lehman Brothers. From 1999 he ran the communications and media group within Lehman's equity capital markets division, until 2001, when he left to join Soundview as Head of European Equities.

Catherine Griggs, Chief Financial Officer/Compliance Officer: Griggs is a qualified accountant (FCCA) with 16 years' experience working in the offshore hedge fund industry. She was Group Financial Controller and Compliance Officer for Titan Capital Management, and prior to that was Financial Controller of Gaiacorp Currency Managers.

Patrick Wills, Managing Director: A specialist in interest rate derivatives, with which he worked for 15 years as both a trader and marketer, he worked initially for Paribas, and moved to Singapore in 1994 to manage the bank's market and liquidity risks in Southeast Asia. In 1998 he moved into sales, and was recently to be seen as a director of Deutsche Bank in London, where he specialised in interest rate sales to hedge funds and proprietary desks.