Moderate Multi Strategy: Pacific Alternative Asset Management Company (Paamco)

Highly commended: Best performing diversified fund of hedge funds over one year

The Moderate Multi Strategy fund, opened in 2001, is designed to achieve an absolute rate of return over a full market cycle. The fund targets a net return of Libor plus 500 basis points and aims to keep standard deviation below 6% while maintaining a relatively low correlation to equity and fixed income markets.

The $6.9 billion fund is the flagship fund of hedge funds (FoHF) of Pacific Alternative Asset Management Company (Paamco). Paamco was formed in March 2000 by four founding partners who had worked together and in the FoHF field for some years.

They had spent the majority of their careers working together researching hedge funds, primarily on behalf of large institutional investors such as public retirement funds. As the company has grown, Paamco says it has maintained this focus to build a solid team that understands the challenges and concerns of its clients. 

Currently over 70% of the manager’s $9.8 billion of assets under management (AUM) comes from pension funds and another 25% from institutional clients including sovereign wealth funds.

Paamco manages portfolios mostly for clients based in North America. They make up 80% of invested assets with 10% from clients in the Middle East and Africa, 8% from the UK and Europe and the remainder from Asia and South America.

The fund usually contains 40 to 50 single manager funds spread across seven different strategies. The manager says all managers provide a high level of detail on investment processes. Paamco is rare in insisting that all its hedge fund managers provide full position level transparency.

It believes this is critical to the investment process so Paamco can measure the exposures of individual managers, assess prospective managers and construct and evaluate its own portfolios.

The company’s systems are able to capture regularly the risk and behavioural characteristics of individual managers and of the combined portfolios. Paamco integrates this risk information throughout its portfolio management, asset allocation and manager selection processes.

The fund has a minimum investment of $5 million and charges an annual management fee of 1% and a performance fee of 5% that is waived on investments over $100 million. It offers share classes in US dollar, sterling and euro and offers quarterly liquidity with 90 days’ notice. Investors allocating over $100 million can invest via a managed account structure.

Paamco says a sector specialist approach is the most effective means of manager selection and alpha generation. Each of its specialists focus on one or two strategies in which they have years of experience and an extensive personal network of contacts they use as the source of their manager ideas.

Rather than relying on third party databases which often contain stale information, Paamco believes the best and most current intelligence regarding what is going on in a particular hedge fund strategy is gained from others working in that strategy.

Each year Paamco evaluates over 500 new managers and from this list chooses 20 to 25 new managers on which to conduct extensive due diligence.

Fund facts

Full name of fund: Paamco Moderate Multi-Strategy (MMS)
Name of investment/management company: Pacific Alternative Asset Management Company (Paamco)
Launch date: June 1, 200
Assets under management: $6.9 billion (at September 30, 2010)
Strategy: multi-strategy
Share classes: US dollar, sterling, euro
Administrator: Citi Fund Services
Auditor: Deloitte
Custodian: Northern Trust
Management fee: 1%
Performance fee: 5%
Minimum investment: $5 million for commingled investments, $100 million for separate accounts
Redemption period/liquidity terms: quarterly with 90 days’ notice