Karvy targets Rs 100 cr biz with maiden hedge funds

Karvy Capital, the asset management arm of the city-based Karvy group, has on Tuesday launched its maiden hedge fund in the country. It aims at attracting `100 crore investments into the fund from high networth individuals and a select group of financial institutions.

Called 'Systematic Edge Fund', the hedge fund is an open-ended category III AIF under the Alternative Investment Fund (AIF) guidelines issued by the SEBI last year. "This fund is among the first of its kind under these guidelines. Karvy Capital will target HNIs and select institutions as potential investors to raise assets in this fund," Karvy said in a statement.

The new fund is a multi-strategy absolute-returns hedge fund and targets delivering positive returns across all equity market scenarios. It will invest in futures and options of equity stocks and indices � taking both long and short exposure thus reducing dependence on overall market direction.

"The launch of this fund is one more step in our journey of building a high-quality alternate asset management platform. Our goal in Karvy Capital is to deliver alpha-seeking investment ideas across debt equity and alternate assets that allow our investors to gain risk-adjusted returns that are far greater than those offered by default investment options such as bank fixed deposits," said Hrishikesh Parandekar, Group Head Broking, Wealth Management & Asset Management, Karvy Group.

We will continue to be on the leading edge of innovation and hope to launch many new and exciting products in times to come, he added. Karvy Capital has built the team for managing this fund over the last two years and has been investing proprietary capital in building its absolute returns strategies. Also considering the relative lack of exposure of Indian investors to hedge funds, Karvy Capital has published an education series on hedge funds � named 'Leading Hedge'.

"Our approach draws a lot from the principles of behavioral finance. We are continuously looking for market inefficiencies in the form of predictabilities. When we spot them, we build systematic strategies to use them to deliver absolute returns," said Swapnil Pawar, Chief Investment Officer, Karvy Capital.By diversifying our investments across a large number of small trades across multiple strategies, we are able to contain risk on one hand and achieve diverse sources of returns on the other, he added.

The AIF regulations introduced by SEBI last year have opened up the field for domestic hedge funds. By bringing the hedge funds explicitly under the market regulator, these regulations are expected to foster investor confidence in hedge funds and enable the growth of a new asset class much needed in India.

The relevance of hedge funds and absolute returns to investor portfolios is based on the corrosive effect of equity market volatility on the wealth building process. Individual investors, swayed by transient feelings of greed or fear, often buy on market highs and sell on market lows. By taking away large swings in returns, hedge funds make the wealth building process less prone to timing anxiety and its ill-effects. They also serve as an effective diversification tool due to their low correlation with broad markets.