Investors with portfolios lacking hedge funds because of high investment amounts can now welcome a new investment asset.
Guaranteed Principal Repayment (GPR) hedge-fund notes have stepped into the market for a month of November, offering no risk of losing principal and a target compound annual return of 10%.
Issued by Citibank Canada, and managed by Chicago-based Mesirow Advanced Strategies, the 10-year "fund of funds" has a guaranteed principal repayment and can be purchased through any major investment dealer.
The notes, which have favourable tax treatment and can perform in both bull and bear markets, are guaranteed a return on their $10/per note and can be redeemed monthly for a 4% fee except for December, when fees are nullified.
Typically hedge funds, have a very high minimum investment amount of $150,000 to $1 million. This alternative asset class can be accessed with as little as $5,000.
"Our product is designed to have very low volatility of returns and low correlation to the boarder equity markets," said Paul Dinelle, v-p of Triax Capital, an investment management firm based in Toronto.
"Most people today don't want to invest in stocks because they're not sure of the market, or bonds where interest rates are so low.
"(With these hedge funds), we call it the sleep factor - essentially the low-volatility and the principal guarantee we have on it. It means people can sleep at night. They're not going to lose money over the long term. They're going to have nice, consistent returns."
Returns with this group of hedge funds are independent of market circumstances, creating a portfolio that can generate a return without taking a lot of risk normally associated with investing in stocks or bonds.
"The key from an average investor's perspective is that he or she gets to have an investment that is not dependent on the movement in the market in order to generate a return," said Jeff Chicoine, managing director of Mesirow.
"And that's where we're talking about low volatility. A lot of times when people think of hedge funds they think of very risky strategies."
Chicoine said the hedge funds have had a positive return of 6.5-9.5% in September.
The funds, led by National Bank Financial and Merrill Lynch, are fully syndicated and accessible by all major brokerage firms.
The offer closes Nov. 30.