The "Draconian" market events of 2008, as Robert L. Worthington, president of Hatteras Funds describes them, "pushed financial advisors to ask for more products that offer diversification, safety and adequate returns-all in the same package."
Hatteras is now rising to the market changes, offering advisors a diversified package of alternative investments, Worthington says. Hatteras, based in Raleigh, N.C., is an alternative investment firm that began carving out its niche in the financial world before the bottom fell out of the market two years ago, but finds its offerings even more popular today.
The firm offers a range of alternative investment funds, designed to offer financial advisors and their clients easy access to institutional-quality private equity and hedge fund managers. Its flagship product, the Hatteras Multi-Strategy Fund, combines hedge funds and private investment funds in one vehicle with the goal of providing greater returns and stability than these funds can provide separately.
Founded seven years ago, Hatteras launched this diversified offering with a focus on registered investment advisor firms, broker-dealers and the small to midsize institutional market. For this particular fund, Hatteras partnered with Morgan Creek Capital Management LLC, a registered investment advisor in Raleigh that provides investment management and advisory services based on the university endowment model. Together, they launched the first of the firm's multi-strategy funds in 2004.
"The advantage of investing in hedge funds is the low correlation to the S&P index and the corresponding decrease in volatility," Worthington says. "At the same time, we have built a diversified pool of private equity managers to seek return enhancement-all in the same fund. Combining the two in one vehicle is a very complicated process, so not many other asset managers can do this."
The Hatteras Multi-Strategy Fund uses 140 managers to allocate to six different asset classes: opportunistic equity, enhanced fixed income, absolute return, real estate, private equity and, energy and natural resources. The diversification provides lower correlation to the traditional asset classes of stocks, bonds and cash.
Hatteras offers endowment-style alternative investments to a client base of high-net-worth individuals, endowments, foundations and pensions whose investment sizes typically range from $1 million to $50 million.
As Hatteras was getting started, Mark W. Yusko, CEO and CIO of Morgan Creek Capital Management, asked about partnering with Hatteras to manage the multi-strategy funds.
"The world had 1,700 hedge funds of funds-I did not feel the world needed 1,701. So we said, let's build something different: a fund that does the whole job for alternative investments," Yusko says.
"Let's provide structure by offering the first registered alternatives and at the same time provide the financial advisor with the tools for instant diversification, without the investor having to hire 50 different managers," he says.