HeadStart’s primary goal is to provide our clients with positive, long-term and stable risk-adjusted returns. We view our role as to provide an active addition to our clients portfolios whereby our returns are driven by alpha with a focus on being uncorrelated to traditional asset classes such as equities or bonds.
Our investment process is a combination of an opportunistic, top-down approach to strategies with vigorous bottom up manager selection. We run a core portfolio of proven, seasoned managers with whom we have a high level of confidence to provide high risk-adjusted returns over the market cycle, together with opportunistic satellite positions to take advantage of our current and medium-term market outlook. The members of HeadStart’s Investment Committee, as well as having daily contact, meet formally on a monthly basis with the other members of the Investment Team to discuss the Fund’s top-down portfolio positioning based on our current and medium-term outlook for global markets, our core holdings are reviewed and satellite positions discussed in light of our market view.
HeadStart’s investment selection process focuses on the edge, integrity, pedigree and business model of the underlying manager. Before any investment is made, during the due diligence process, members of the Investment Committee will have met with key individuals of the prospective investment. Prospective investments undergo both detailed quantitative and qualitative analysis together with extensive investment and operational due diligence (including, but not limited to, a review of: operational procedures, infrastructure, documents, background checks on key personnel, asset verifications with brokers / custodians / administrators, etc…). Once a fund has been approved for investment, depending on the Investment Committee’s top-down view, an allocation may be made.
Sizing of positions is based on a variety of factors, including, but not limited to: strategy, volatility, correlation, diversification, liquidity and the potential investment’s impact on the current portfolio. Subsequent risk monitoring and due diligence is integral to the on-going portfolio management activities; we look at both market factors as well as business risks at the underlying funds. Both qualitative and quantitative methods are used to fully understand the Fund’s market positioning and exposures. This continued analysis is designed to quickly identify style drift and significant changes in underlying managers positioning and risk parameters which would lead us to reassess the position and exit if necessary to maintain a disciplined risk management approach.
We are strong believers in building relationships with our underlying managers. As part of our approach to managing a portfolio capable of navigating across market cycles we look to identify funds that have the potential to be multi-year investments. Indeed many of our portfolio holdings today have been in the portfolio for a significant number of years. Building strong relationships with our underlying managers is critical from both a capacity perspective as well as ensuring that we maintain a strong understanding as to how the firm and investment process evolves. The relationships that we build with our underlying managers is also a key source of market intelligence on new potential investments.
Whilst in an ‘ideal world’ we would like to invest in managers for multiple years, history dictates that this cannot always be the case. Managers may typically be removed from the portfolio in a number of scenarios. The most common is through poor performance, which may be relative to their peer group or just poor absolute performance that differs from our anticipated return for the manager given the environment. In other cases style drift, business risk, departure of key personnel and regulatory issues may also be factors. A change in the Investment Committee’s market outlook may also be a cause for redeeming from a manager; however, this is more likely for a satellite holding.
Headstart has been active in the hedge fund industry for more than twenty years and over that time has witnessed first-hand the extent to which the industry has transformed. This experience is reflected in the transparency that the firm provides to its underlying investors. We believe the more investors know and understand about their investment, the greater the benefit for them, for our business and the industry in general. To that extent Headstart provides full portfolio transparency to its investors upon request. In addition, the members of the Investment Committee are on hand to discuss and meet with Investors.