CQS plans soft close for flagship ABS hedge fund

CQS is to soft close its flagship ABS hedge fund, a product that nearly tripled investors’ money during the crunch as manager Alistair Lumsden foresaw and bet on the US sub-prime meltdown.

Directors of the fund are understood to have outlined proposals to cap the fund, to investors earlier this week.

A letter sent to investors said: “It has been agreed with the directors that we will actively manage net monthly inflows to the fund.

“We believe the opportunity set remains strong and we remain committed to putting the interests of our clients first. We are fully cognizant of the amount of time investors need to complete their due diligence and we are ensuring within our soft close process that all clients receive adequate notice.”

An investor said ABS made 4.5% this year, including 0.2% in May. It has returned 35.2%, annualised, since inception in October 2006.

In a boon for retail buyers, the $11bn asset manager is reserving some capacity in ABS, after closure, for CQS Diversified, CQS’s its London-listed $460m fund of funds – the route for retail investors to access its managers’ skills.

CQS is believed to be planning to close the $1.6bn ABS portfolio at around $2bn, so as not to hurt returns for existing investors, and to monitor performance at its current size.

The reason for delaying closure for about $400m of further money is to give a number of prospective investors time to complete due diligence they are conducting on the product.

Lumsden told clients at a recent London client conference the opportunities in asset-backed securities markets remain plentiful, even after the sharp end of the credit crunch passed over two years ago.

He correctly bet on the sub-prime crisis, delivering 179% through for investors in the two years to June 2009.

The ABS product was the best of nearly 450 relative value hedge funds analysed over that period.

CQS has also put aside capacity in its soft-closed $1.4bn CQS Directional Opportunities portfolio, managed by CQS founder Michael Hintze (pictured), for further allocations from Diversified.

Directional Opportunities made 5.9% this year, despite a modest 0.6% fall in May. Last year it posted 31.4%, and has generated 23.9% since inception in August 2005.

CQS is one of a number of prominent hedge funds to have closed flagship products since the credit crunch, as industry assets passed $2trn, and surpassed their pre-crisis peaks.

Lansdowne Partners and Brevan Howard are two others to have done so.

David Walker

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