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Gottex readies fund to let Main Street invest like Wall Street

Svea Herbst-Bayliss
Monday, 30 Dec 2013 | 3:42 PM ET

BOSTON, Dec 30 (Reuters) - Hedge fund firm Gottex Fund Management is readying a new mutual fund that will let retail clients sample asset classes normally reserved for millionaires, like hedge funds, private equity and real estate.

The Gottex Endowment Strategy Fund (GTEAX) will be available for purchase later this week after it invests its $100 million in seed capital from the Swiss firm by December 31.

Gottex, founded by Joachim Gottschalk in 1992, becomes the latest firm to tap into growing demand from investors for portfolios that promise to make money in good times and bad by being less correlated to broader markets.

"This will allow investors to get access to a wide range of markets, trading strategies and alternative investments in a controlled environment," William Landes, senior managing director at Gottex and the fund's chief investment officer said in an interview in Boston.

A minimum investment of $1,000 will get investors a mix of funds, including ones run by Tremblant Capital and Marketfield Asset Management, plus many others, Landes said.

Gottex, which has run a similar fund for institutional investors since 2008, this month announced plans to buy Arpad Busson's EIM Group in a deal that will boost assets to roughly $10 billion.

The new fund's annual cost will be 1.6 percent, and while that is double what investors pay for Fidelity's Contrafund, it is less than the 2 percent management fee plus 20 percent performance fee most hedge funds charge.

"It is certainly an attractive pitch to get access to what millionaires can access for much less," said John Longo, a professor of finance at Rutgers University and chief investment officer of wealth advisor MDE Group.

"Investing in hedge funds makes sense now," he added. "But it is also important to compare prices."

Landes said the new fund expects to mimic endowments where the average annual return is 12.9 percent over the last 20 years compared with an 8 percent return of a stocks-and-bond portfolio.

With its new product, Gottex is joining a growing list of fund firms now tapping into investors' demands for portfolios that are less correlated to broader markets. Until recently, hedge funds and private equity and real estate were off-limits to retail investors because they were deemed too risky and expensive, often requiring a $5 million minimum investment.

Researchers at Goldman Sachs counted roughly 400 so-called liquid alternatives funds, including offerings from Blackstone Group and Arden Asset Management which are both being distributed through Fidelity Investments, and said roughly one-third of them were launched within the last two years.

For funds-of-funds now facing a decline in high-end business because institutional investors such as pension funds prefer to make direct hedge fund investments, funds for retail customers may prove lucrative.

Investors are expected to warm to these types of funds quickly, sending as much as $2 trillion into them over the next five to 10 years, Goldman forecast in a recent research report.