LHA's pedigree is in the discovery and shaping of innovative quantitative investment programs into strategies that seek alpha production, risk management and diversification away from style-box portfolios. Strategies that can attract meaningful investment will be sponsored by LHA.
LHA has also developed a structure it calls a “Composite”. The Composite structure was developed in response to the flaws LHA observed in the fund-of-funds model in the wake of the 2008 financial crisis. Seeking to address these problems, the Composite structure offers a clear investment theme, the elimination of layered management fees, a netted incentive fee based on the return of the aggregate portfolio (not on the individual returns of underlying managers), holdings transparency to LHA, and an additional level of risk oversight.
Composites are organized with one investment thesis, but with a diversification proposition constructed from a limited and carefully selected cohort of complementary underlying managers. By building a specific investment thesis with dedicated independent managers, LHA Composites avoid over-diversification (which may occur in the typical fund-of-hedge-fund structure) and maintain the independent discretion of the return-drivers in a particular portfolio (unlike most multi-strategy complexes). Additionally, each of the underlying managers in a select group has a well-defined single-solution focus (i.e., an alpha edge) with natural capacity constraints typically associated with such focus, an established track record, demonstrated risk management, and a significant principal capital investment.
LHA Composites are positioned for both institutional and qualified eligible high-net-worth investors who seek portal-like access to mid-sized hedge fund managers in a single investment with a single layer of management fees and performance fee-netting across the underlying managers. LHA usually allocates Composite assets in equal percentages among the underlying managers, rebalanced on at least a quarterly basis. This eliminates the central actor risk arising from market calls by an individual or committee that may adjust asset allocations on an ad-hoc basis.
Bespoke Composites can be built in coordination with an institutional investor or family office and generally require an investment minimum of $25 million. Built on a customized managed account platform, they can have sophisticated fee structuring, and underlying manager selection is done cooperatively between the investor and LHA, drawing on LHA’s investment and operational due diligence. LHA will act as the investment adviser and will manage overall risk. Allocations to underlying managers can be done on either a static basis with regular rebalancing or on a dynamic-basis as requested. The managed account platform provides security-level transparency to LHA, daily positional control, liquidity, and the potential for risk management overlay.