Pohjola Asset Management

Helsinki-based OP Wealth Management’s R2 Crystal Fund invests in 10-15 different hedge funds across a wide range of strategies. Jussi Kärävä, Head of Fund Selection, told us more about its ongoing success.

OP Financial Group is Finland’s largest financial ser­vices group. It provides its customers with diversified range of banking, investment and insurance services. R2 Crystal Fund is managed by OP Wealth Man­agement which is one of the Group’s three business segments. R2 Crystal Fund is a fund of hedge funds with net assets of approximately EUR160m and cu­mulative returns since inception in January 2006 of 89% (7.30% p.a.) and annualised volatility of 5.90%.

“The Fund’s investment objective is to seek con­sistent high absolute returns with low correlation to traditional asset classes and a lower level of risk than a diversified equity portfolio, as measured by the volatility of returns,” says Jussi Kärävä, Head of Fund Selection. “Typically the fund’s assets are invested in 10-15 different hedge funds across a wide range of strategies. The fund may employ borrowing, on aver­age 25% and 50% of its net asset value, to achieve its investment objective.”

R2 Crystal Fund’s long-term commitment and experience in hedge fund investing and fund selection give it a competitive edge, he says. “Together with our continuously improved investment and operational processes, significant infrastructure investments and access to company-wide pool of resources support our position as the leading hedge fund of funds manager in Finland. “In terms of the R2 Crystal Fund, our approach of running a fairly concentrated portfolio of globally leading blue-chip hedge fund names, many of them nowadays closed for new investors, is a unique offering that would be difficult to replicate by any of our competitors. Our investors also greatly value the fact, that we have a significant internal investment in the fund. “Our strengths lie especially in our portfolio selection, strategic allocation and sourcing capabili­ties based on our long experience and long-standing relationships in the industry,” he says.

The Fund, which is registered in Ireland, invests mainly in Britain and America. “Our investable uni­verse in our own geographical region is remote and most of the funds in our portfolio are based in the UK or the US,” says Kärävä.

Challenges and opportunities

These are challenging times for the asset manage­ment industry, as it is not easy to generate returns in the current low-growth, low-rate economy, says Kärävä. “At the same time, we feel this is creating opportunities for our hedge funds business with its better flexibility and ability to provide attractive risk and return characteristics and serve as a useful complement to investors’ current asset allocation plans. Indeed, we continue to see increased interest from our customers towards the R2 Crystal Fund and hedge fund investing in general.”

The next 12 months look bright, he says. “2015 will be a good year for the hedge fund industry, with di­verging global economics, political uncertainties and increasing volatility creating better investment oppor­tunities as compared to 2014. We believe increased investor interest towards hedge fund investing will continue and we expect to see significant net inflows during the course of the year.

“We think most significant changes in the industry over recent years have been the enhancements in transparency, controls and infrastructure, helping to create better credibility especially towards institution­al investors. But this evolution remains a work in pro­gress, with inefficiencies and areas for improvement yet to be addressed.”

Recognising success

The R2 Crystal Fund has been named Best Fund of Hedge Funds – Finland in the Hedge Fund Awards. “We are naturally very pleased to see our capabilities acknowledged at this level,” says Pia Söderblom, Portfolio Manager. “We are proud and honoured for this important recognition, and feel obliged to contin­ue to deliver superior performance for our investors across market cycles.

“We think our long-term commitment to contin­uous improvement of our investment processes, operational capabilities and risk management and the resulting ability to continuously generate above average risk-adjusted returns are what distinguish us from many of our competitors. Evidently this has been noted by our peers and clients.

“For us, this award is a valuable recognition of our clients’ and peers’ support and our ability to deliver above expectations. We are naturally very pleased to see our capabilities acknowledged on this level.”

Changing perceptions

The world of hedge funds is often viewed as a secre­tive one, but that perception is gradually changing, Söderblom says. “We definitely feel that the way hedge fund managers and the industry in general are seen by the general public, has changed for the better during the last couple of years. Increased transparen­cy and regulatory oversight have worked to decrease the shadowy reputation previously associated with the industry by many, making the hedge fund industry stronger and more attractive to investors today.”

As for the future, OP Wealth Management plans to continue to grow its hedge funds business, says Söder­blom. “We see recent changes in the industry welcome and creating new opportunities for us in the future. In accordance with growing investor demand, we plan to further increase the size and depth of our hedge funds business in the coming months and years.”