Sweden’s AP7 default fund has ended its 12 month search for hedge fund managers with the appointment of New York-based K2 and Arpad Busson’s Geneva-based EIM to run two new Sek500m (e55m) fund of funds portfolios.
Last May the Sek25bn fund announced the decision to invest 4% of its capital in hedge funds and 4% in private equity. Winners of the private equity mandates will be announced in a fortnight.
K2 will take on a higher risk investment approach that includes long-short strategies. EIM will be more moderate and invest in lower volatility, risk neutral strategies like convertible arbitrage.
For the increased risk it will incur, K2 is expected to produce an annual return of between 12% and 15%- roughly three to four times the US risk free rate of return. EIM has been set an equivalent target of 8%-12%.
“Mixed together, the two give a very good expected performance and risk ratio,” says Richard Grottheim, executive vice president at AP7.
Between them, K2 and EIM will use the services of between thirty and forty underlying hedge fund managers with varying strategies. “We have put into the contract that the managers are not allowed to put more than 50% into a single strategy,” says Grottheim.
More than 130 managers responded to the initial RFP last year. EIM and K2 triumphed from a shortlist of six- two European and four US managers.