IDFC

Funds managed

Fund name Asset ClassLicense
 IDFC India Equity Hedge Tactical FundLong short equitiesSEBI AIF Cat 3
IDFC India Equity Hedge-Conservative Fund.Hedge fundSEBI AIF Cat 3

About the AMC

  • Started AIF in 2002
  • Fund Manager- Vijay Krishna Kumar, Director- Liquid Alternatives, and an early pioneer in Indian Long / short investing with a 12-year track record and a total investment experience of 19 years.

Investment Philosophy (for firm)

The fund wants to use cash equities and equity derivatives to create alpha generating sub-strategies. It wants to have the flexibility of being Net Long or Net short depending on the investment view. The four sub-strategies to be employed include Long exposures, Short exposures, Market Neutral exposures, and Yield enhancement strategies. The number of stocks/securities in the fund portfolio will vary from anywhere between 30-65 positions typically across its 4 sub-strategies.

IDFC India Equity Hedge Tactical Fund endeavors to deliver a return profile that will be comparable to equities, but it aims to deliver positive returns in bear and volatile markets as well. With the current market volatility, investors are looking for a fund that can provide absolute returns irrespective of the market cycle or how the interest rates are moving.

Such AIFs may deliver 20% plus annualized gross target return, but do remember there is no assurance and guarantee as to the returns or performance, and the actual returns would depend on market conditions.

There are funds that have not been able to deliver positive returns in these markets in the last few months. The aim of this alternative fund is to give more diversification and low correlation to existing traditional investments. They are not meant to replace traditional investments. Rich investors can use IDFC India Equity Hedge Tactical Fund to add value to your asset allocation mix.

Media

IDFC AMC floats maiden hedge fund, VC Circle, 18 January, 2018

https://www.vccircle.com/idfc-amc-floats-maiden-hedge-fund

IDFC Asset Management Company is launching its inaugural India equity long/short hedge fund under the name IDFC India Equity Hedge-Conservative Fund.

It is a category-III alternative investment fund (AIF) managed by Vijay Krishna Kumar, director of liquid alternatives at IDFC AMC, the company said in a statement.

As per the Securities and Exchange Board of India (SEBI)’s rules for AIFs, a category-III alternative investment fund is defined as a privately pooled investment fund, irrespective of its destination, in the form of a trust or a company or a body corporate or a limited liability partnership (LLP).

Category-III funds undertake leverage to a large extent and invest keeping in mind negative market conditions using complex trading strategies. These funds trade with a view to making short-term returns and are allowed to invest in category-I and category-II AIFs.

IDFC India Equity Hedge Fund will target annualized returns between traditional fixed income and long-term equity, while striving to be largely uncorrelated to either asset class across market cycles, said IDFC AMC.

“The fund is being launched by the company’s liquid alternatives division which focuses on offering products that are liquid, unique and add value to the overall asset allocation of sophisticated investors in domestic and international markets,” said Vishal Kapoor, chief executive officer of IDFC AMC.

The fund will seek to generate absolute returns with half the volatility of the Nifty. It primarily invests in Indian equities, derivatives, cash equivalents and arbitrage instruments.

“In the investment world, just like any other business, the prospect for generating returns is a function of two factors – the available opportunity set and the number of entities competing for it. Both these factors are very attractive in India. Unlike most developed and large emerging markets, India has only a handful of long/short funds since a majority of portfolio managers are focusing only on traditional buy ideas,” said Vijay Krishna Kumar, fund manager of IDFC India Equity Hedge Fund.

Established in 2000, IDFC AMC is among the top 15 mutual fund firms in India. Its average assets under management stood at Rs 66,361 crore in the July- September quarter.

In March 2017, IDFC Financial Holding Company acquired a 25% stake held by Paris-based Natixis Global Asset Management for Rs 244.24 crore ($37 million) in IDFC AMC thereby increasing its stake to 100%.

Early this week, VCCircle reported Avendus Group’s hedge fund The Avendus Absolute Return Fund touched Rs 3,300 crore ($520 million) in assets under management.

AIF review: IDFC India Equity Hedge Tactical Fund; should you allocate? , RupeeIQ, March 1, 2019

https://www.rupeeiq.com/content/aif-review-idfc-india-equity-hedge-tactical-fund-should-you-allocate/

  • Can you tell us about how you will be ‘Net Long’ or ‘Net short’?

We will take ‘Net Long’ or ‘Net Short’ positions through a combination of cash and futures longs, single stock futures shorts and options. Our net exposure (net long or net short) will be a synthesis of bottom-up, mostly value-driven ideas within our opportunity set, with a top-down macro overlay.

  • What is the role of forensic research analysis in this fund? How will the fund use the analysis?

We believe it is crucial to completely understand the companies we take positions in, whatever they may be, long, short or pair ideas. Especially in the increasingly challenging macro and regulatory environment, we are facing. To this endeavor, we dive deep beyond the published financials to uncover aggressive accounting practices, related party transactions, uses of cash, financing structures (ALM mismatches for financials), and shareholder value creation to understand how best to value the company. Unless we can establish a margin of safety to the current price, we do not take a position.

  • What is the Exit Strategy from an investment?

Our portfolio is liquid and can be unwound fairly quickly. Exits on individual positions are a function of the Ex-Ante Alphas (margin of safety) vs unit of risk, money management rules and top-down macro or sector driven.

  • Any market cap tilt in the fund or you would be simply opportunistic?

Generally, portfolios will be mostly large and Large-Mid Cap invested, to avoid beta consolidation risk. The portfolio can invest up to 20% in Small Caps, but the manager is not convinced we are at a bottom yet.

  • What is the USP of IDFC India Equity Hedge Tactical Fund compared to other long-short AIFs in India at present?

We do not comment on other managers. We would urge investors and AIF allocators to conduct their own due diligence on managers, and their audited track records in managing their strategies. From our end, our manager has a demonstrable audited track record in India focused Long/Short strategies since 2006, managing European and US institutional capital amongst others. The combined track record from previous tenures of the manager managing a similar Tactical strategy has demonstrated completely market uncorrelated returns. Furthermore, on average when indices have been negative, the combined track record has demonstrated positive returns on average. We naturally make no assurances going forward.

IDFC AMC launches India Equity Hedge Fund, economic times, Jan 18, 2018

https://economictimes.indiatimes.com/mf/mf-news/idfc-amc-launches-india-equity-hedge-fund/articleshow/62553239.cms?from=mdr

IDFC AMC is launching its inaugural India equity Long/Short strategy called IDFC India Equity Hedge – Conservative Fund. This Category 3 AIF fund will follow a low net/market neutral risk framework, in keeping with its conservative character. It will target annualized returns between traditional fixed income and long term equity, whilst striving to be largely uncorrelated to either asset class across market cycles.

“This fund is being launched by the company’s Liquid Alternatives division, which focuses on offering products that are liquid, unique and add value to the overall asset allocation of sophisticated investors in domestic and international markets,” said Vishal Kapoor, CEO, IDFC AMC.

The fund house in a release said that the scheme will seek to generate absolute returns with half the volatility of the Nifty; by primarily investing in Indian equities, derivatives, cash equivalents and arbitrage instruments. It will employ a range of sub-strategies which together can potentially generate a steady stream of returns across bull and bear market cycles.

Vijay Krishna Kumar, Director- Liquid Alternatives, IDFC AMC, will be managing the fund. “In the investment world, just like any other business, the prospects for generating returns are a function of two factors – the available opportunity set and the number of entities competing for it. Both these factors are very attractive in India. Unlike most developed and large emerging markets India has only a handful of Long/Short funds since a majority of portfolio managers are focusing only on traditional buy ideas,” Vijay Krishna Kumar said.

IDFC AMC launches IDFC India Equity Hedge Tactical Fund, hedge week,

21/02/2019

https://www.hedgeweek.com/2019/02/21/273298/idfc-amc-launches-idfc-india-equity-hedge-tactical-fund

IDFC AMC’s first AIF Category III offering, IDFC India Equity Hedge Conservative Fund, launched in January 2018 follows a Low Net/Market Neutral risk framework in keeping with its conservative character. The new fund, IDFC India Equity Hedge Tactical Fund, will have similar underlying strategies but higher net exposures to better capture equity market movements both on the long and the short side. Being an AIF Category 3 offering, the fund will have a minimum Rs 1 crore investment requirement suitable for Ultra High Net Worth Individuals, Family offices, Corporations and Institutions.
 
Highlighting the key difference between the two AIF Category III funds he manages, Kumar says: “Our first product, IDFC IEH Conservative Fund offered an alternative to various fixed income strategies while the IDFC IEH Tactical Fund will offer an alternative to Equity oriented strategies. What this allows us to do is to provide an alternative to both fixed income as well as equity oriented strategies, under one fund house. With the two funds under our belt we now offer ‘true to label’ alternatives under our AIF Category III platform to both traditional equity and fixed income funds.”
 
IDFC says that the objective of these alternative funds is to add diversification and low correlation to existing traditional investments. They are not meant to replace traditional investments, but to add value to the overall asset allocation mix.

Diversify your portfolio with AIF funds that can ride various market cycles: IDFC AMC, Money Control, Mar 26, 2019

https://www.moneycontrol.com/news/business/markets/diversify-your-portfolio-with-aif-funds-that-can-ride-various-market-cycles-idfc-amc-3691121.html

  • What is the size of the AIF industry in India and how it is gaining traction in India?

A) We believe that Category 3 AIFs (i.e., Long/Short AIFs as per the traditional definition of Alternatives) are around Rs 12,000 crore currently.

This is far lower than Long/Short Funds in other geographies (including other BRICS) which typically constitute 3-5 percent of traditional AUMs.

There is a pressing need for uncorrelated Alternatives in India. We are way behind the rest of the world and believe the opportunity here is huge.

  • How can investors gain international exposure via AIFs?

A) Subject to RBI mandated limits to invest in offshore funds, there is a considerable choice in the Alternative offerings available in Developed Markets.

From global to regional to country-specific mandates. Long/Short, Global Macro, CTAs (Commodity Trading Advisors) are some of the strategies that typically dominate global Hedge Fund allocations.

  • How different are Long/Short AIFs from Long-only AIFs?

A) Well, these are completely different asset classes. Long only AIFs are comparable to long-only Mutual Funds and tend to be correlated to them. Long/Short AIFs on the other hand, run hedged equity strategies and vary in style among each other.

Within Long/Short AIFs, it is possible to further differentiate between:

Market Neutral Long/Shorts: These tend to have a Net Exposure of around 0% (where Long exposures=Short exposures) and ranges between -10% to +10%. Low volatility, seeking to outperform short term debt.

Low Net Market Neutral Long/Shorts (LNMN): Net Exposures of between -20% to +30% offering some leeway around 0%. Low volatility; seek to outperform all classes of Debt funds over a cycle.

Moderate Net Long/Shorts: Net Exposures of between +20% to +50%. Low to moderate equity net exposure seeking to make more Alpha from Longs.

Tactical Long/Shorts: Freestyle net exposures to either are tactically net long, net short, or market neutral across all market cycles. Seek to make both Stock Alpha and Market Timing Alpha.

Long-biased or Leveraged Long/Shorts: Very long-biased (i.e., Net exposures above 60%). High returns with high volatility in Bull markets.

  • You have recently launched your equity hedge tactical fund ‘IDFC India Equity Hedge Tactical Fund’ which follows a tactical Long/Short strategy. How will these funds generate returns in bull and bear phases?

A) Firstly, the strategy involves generating Alpha from various sub-strategies, such as Longs, Shorts, and Pairs, no matter what phase of the cycle we are in. Putting these together makes the Portfolio Alpha less correlated to markets.

Secondly, the Fund can go tactically and strategically either Net Long over Bull markets (where Long exposures are greater than Short exposures) or Net Short over Bear markets (Short exposures exceed Long exposures) for market timing gains. Of course, this is easier said than done.

IDFC AMC launches IDFC India Equity Hedge Tactical Fund, Café Mutual, Feb 21, 2019

https://cafemutual.com/news/industry/15729-idfc-amc-launches-idfc-india-equity-hedge-tactical-fund

According to a company press release, the fund will follow a tactical long / short equity strategy and will aim to generate annualized returns comparable to equity funds across both bull and bear market cycles. The fund will have significantly higher net exposures, typically ranging between -40% to +120%, to have higher participation in equity market movements on both sides.

Commenting on why IDFC AMC decided to launch the product, Vishal Kapoor, CEO, IDFC AMC, said “With the current market volatility, investors are looking for a fund that can provide absolute returns irrespective of the market cycle or how the interest rates are moving. Also, as the fund’s return and risk drivers are very different from traditional products, it has the potential to offer an uncorrelated alternative. We estimate that IDFC India Equity Hedge – Tactical Fund has the potential to raise Rs. 1000 crore in the current market.”

Veteran Hedge Fund Manager Loads Up Bearish Bets on India Rally, Bloomberg, April 30, 2019

https://www.bloomberg.com/news/articles/2019-04-30/veteran-hedge-fund-manager-loads-up-bearish-bets-on-india-rally

Didn’t have access to this article.

This hedge fund is going long on India even as fear spikes, Economic Times, Mar 12, 2020

https://economictimes.indiatimes.com/markets/stocks/news/this-hedge-fund-is-going-long-on-india-even-as-fear-spikes/articleshow/74592167.cms

A veteran hedge fund manager is going long on Indian stocks even as fear of further losses among the nation’s equity investors surged to a record as the stocks head for the worst weekly fall in more than 12 years. “Asset prices typically do not fall in straight lines without some retracement, and hence currently, we have pivoted to a net long stance from being defensively net short for the past several months,” Vijay Krishna Kumar, head of Liquid Alternatives investment at IDFC Asset Management company.
Measure across the globe to fight the coronavirus outbreak continue to undermine prospects for corporate earnings and raise the scepter of a funding crisis, leading to the biggest rout in equities since 2009. Making things worse, in India, the central bank seized embattled lender Yes Bank NSE -1.66 % Ltd. last week, raising the danger of a credit market crisis. Kumar, who began managing long-short strategies at London-based AGRA India Fund in 2006, is buying at a time when India’s largest hedge fund — Avendus Absolute Return Fund — is hoarding cash following a spike in volatility. Kumar manages two long-short funds — IDFC India Equity Hedge Tactical Fund and India Equity Hedge Conservative Fund — under IDFC’s alternate.

“A risk-on mode can come back into this market at any time as the system is flush with global liquidity as rates collapse and investors look favorably at India owing to Brent’s collapse,” Kumar said. “We are adding to our value and dividend-yielding investments in sectors like tobacco, energy, and utilities.”

Asset management giant IDFC launches equity hedge tactical fund ‘IDFC India’,  zeebiz, Feb 22, 2019

https://www.zeebiz.com/companies/news-asset-management-giant-idfc-launches-equity-hedge-tactical-fund-idfc-india-87096

Asset Management Company (AMC) IDFC on February 21 announced the launch of IDFC India Equity Hedge – Tactical Fund, an AIF Category III offering. The fund will follow a Tactical Long or Short Equity strategy and target annualized returns comparable to those from equity funds with the potential to generate those returns across bull and bear market cycles alike. The fund will have significantly higher net exposures, typically ranging between -40% to +120%, to have higher participation in equity market movements on both sides.  

Commenting on why IDFC AMC decided to launch the product, Vishal Kapoor, CEO, IDFC AMC, said that, “With the current market volatility, investors are looking for a fund that can provide absolute returns irrespective of the market cycle or how the interest rates are moving. Also, as the fund’s return and risk drivers are very different from traditional products it has the potential to offer an uncorrelated alternative. We estimate that IDFC India Equity Hedge – Tactical Fund has the potential to raise Rs. 1000 crore, in the current market.” 

The fund will be managed by IDFC AMC’s Vijay Krishna Kumar, Director- Liquid Alternatives, and an early pioneer in Indian Long or Short investing with a 12-year track record and a total investment experience of 19 years. The investment team will include a Forensic Research Analyst, specializing in deep-dive research into company accounts, valuation modeling and identifying key drivers for long and short alpha and an Algorithmic Quantitative Trader, looking into securities dealing, position monitoring and risk management.
 
Highlighting the key difference between the two AIF Category III funds he manages, Vijay Krishna Kumar, Director- Liquid Alternatives, IDFC AMC said that, “Our first product, IDFC IEH Conservative Fund offered an alternative to various fixed income strategies while the IDFC IEH Tactical Fund will offer an alternative to Equity-oriented strategies. What this allows us to do is to provide an alternative to both fixed income as well as equity-oriented strategies, under one fund house. With the two funds under our belt, we now offer ‘true to label’ alternatives under our AIF Category III platform to both traditional equity and fixed income funds.” 

IDFC AMC’s first AIF Category III offering, IDFC India Equity Hedge Conservative Fund, launched in January 2018 follows a Low Net/Market Neutral risk framework in keeping with its conservative character. The new fund, IDFC India Equity Hedge Tactical Fund, will have similar underlying strategies but higher net exposures to better capture equity market movements both on the long and the short side. Being an AIF Category 3 offering, the fund will have a minimum Rs 1 crore investment requirement suitable for Ultra High Net Worth Individuals, Family offices, Corporations, and Institutions. 

The objective of these Alternative funds is to add diversification and low correlation to existing traditional investments. They are not meant to replace traditional investments, but to add value to the overall asset allocation mix

Analyst questions



What kind of investment perspective of an investor should have while considering any one out of two funds mentioned above?

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