AlphaGrep Investment Management has launched its first specialized investment fund (SIF), the Eminence Hybrid Long-Short Fund, with a new fund offer (NFO) closing on October 28. According to reports from Value Research, the fund requires a minimum investment of ₹10 lakh and is designed to compete with arbitrage funds while offering lower market risk. The fund uses computer models that AlphaGrep has been trading with for 16 years and applies these same strategies to institutional money management.
As reported by Value Research, AlphaGrep's back-test shows the fund could deliver 10% annual returns with volatility of 2-3%, significantly outperforming traditional arbitrage funds. The company claims arbitrage funds have earned approximately 6% annually over the last four to five years with volatility near 1%, while equity savings funds earned about 6.5% with more than four times the volatility. AlphaGrep's back-test demonstrates the fund moved less than one-tenth as much as the market during testing periods.
According to Value Research, the fund employs seven strategies, or 'sleeves', that rarely move together simultaneously. The largest sleeve typically holds 30-40% of the fund and pairs long and short positions on 150-170 of the roughly 200 stocks with futures, splitting them equally between long and short positions. Most remaining money is allocated to covered calls with protective puts, special situations including merger arbitrage (maximum 10%), and short-to-medium-duration debt. Unlike mutual funds, SIFs can short up to 25% of their portfolio without owning the underlying stock.
As reported by Value Research, AlphaGrep manages or advises on approximately ₹20,000 crore across the group, with more than 200 of its 500 employees working in research. The company uses all seven strategies in its Category III alternative investment funds (AIFs), including a long-short fund with a four-and-a-half-year record. Ambani indicates the fund will close to fresh money at ₹2,000-3,000 crore as these strategies lose their edge as assets grow.
According to Value Research, the fund targets investors currently in arbitrage, equity savings, or debt funds seeking 8-10% returns without equity market risk. Ambani emphasizes that gains on units held for more than a year attract only long-term capital gains tax. The fund is designed for investors willing to stay invested for at least a year, with the company warning that even matching arbitrage returns would be considered a disappointment by their performance standards.
