Finance: Hedge fund 'remains on course' despite second-yeardecline

The first hedge fund for charities to be authorised by the Charity Commission has seen its returns dip significantly in its second year of operation.

The Absolute Return Trust for Charities, managed by Cazenove, posted a total return of 6.12 per cent for 2004. This compares unfavourably with a 12.6 per cent return in 2003.

But Cazenove says that it is still on course to hit a target of net total returns of 8-10 per cent over five years. The annualised return currently stands at 9.3 per cent.

"We are delivering as intended," said John Gordon, director of charity client service at Cazenove.

The Absolute Return Trust for Charities is a fund of hedge funds, which means that it invests in hedge funds. Since its launch at the beginning of 2003, it has grown to a value of £150m, invested by more than 100 charity clients. Seven charity fund management firms also invest in the fund. The fund achieved a 'distribution' to investors of 2 per cent during 2004, a third of its total percentage return.

Overall charity investments posted a return of 11 per cent during 2004, a more modest return than 2003's 17.5 per cent.

Shirley Scott, chief executive of the Charity Finance Directors' Group, said: "This is not an extreme result, given the market climate and the nature of hedge funds. They are more volatile than other investments and Cazenove is right in asserting that this fund needs to be tested over five years."

Other 2004 results announced last week include the Charities Property Fund, which realised an income return of 6.3 per cent for investors for the year. The fund invested £100m in 15 new properties. Charles Mesquita, charities specialist with Carr Sheppards Crosthwaite, which co-manages the fund, said: "It is clear that charities want to maximise their income while protecting their underlying capital against erosion by inflation.

Our aim is to deliver consistent returns without the potential risks inherent in gearing the portfolio, which should mean our performance is not as volatile as some other funds."

Another common investment fund, JP Morgan Fleming's Fledgling UK Equity Fund, has announced a five-year performance of 2 per cent above the FTSE All-Share index. It has a performance target of 1 per cent above the index.

FACT FILE

- Absolute Return Trust for Charities has posted a 6.12 per cent total return for 2004, down from 12.6 in 2003

- Cazenove, which manages the trust, is still on course to hit its five-year net target of 8-10 per cent. Return stands at 9.3 per cent currently

- Since 2003 the trust has grown to a value of £150m and has invested for more than 100 charity clients

- Overall charity investments returned 11 per cent in 2004, down from 17.5 per cent in 2003

- Charities Property Fund realised income return of 6.3 per cent for 2004.

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