In an encouraging sign for investors who had been apprehensive about the continued decline of the Nigerian stock market, First City Monument Bank (FCMB) and INTL Consilium LLC Florida USA recently announced a partnership to launch a US$100 million hedge fund investing in Africa and the Middle East.

The First Hedge Fund involving a Nigerian institution aims to deliver 25 percent (in dollar term) per annum return whilst using hedging strategies to minimize volatility and downside. Hedge Funds are speculative funds which make large bets on market movements. They utilize borrowed money to substantially leverage their returns and losses often at a factor to one or more.

Specifically, Hedge funds purchase exotic securities and also take substantial short positions when they think the market or a particular sector of the market will go down. Such funds are extremely risky and are suitable for high-wealth investors only. A statement jointly issued by FCMB and INTL Consilium said the fund tagged Legacy Africa Alpha Fund  will invest exclusively in Africa and Middle East debt and equity, and will be structured as an absolute return fund.  The fund which will place a 30 percent cap on its Middle Eastern weighting to ensure significant exposure to Africa ’s fastest growing economies has been officially launched with $100M under management.

The Legacy Alpha fund which would be listed on the Irish Stock Exchange intends to seek opportunities to reduce risk through hedging strategies by shorting a stock or asset class thus targeted return of 22 percent on less than 10 percent risk volatility. The new Legacy Africa Alpha Fund is a natural extension to our global products as we have been investing aggressively in the region for three years now.\" By partnering with FCMB Group, INTL Consilium will access the stock picking expertise of CSL, FCMB’s soon to be acquired asset management and prime brokerage arm (pending regulatory approval in Nigeria ).

CSL is consolidating its position to become Nigeria ’s leading asset management company both in terms of expertise and assets under management. By sending a number of its Africa focused analysts and fund managers on secondment to the management of the fund, the firm is leveraging the partnership to help build capacity for the future. In addition to the Legacy Africa Alpha Fund, CSL is simultaneously launching two additional funds under the flagship \"Legacy\" brand.

The Legacy 50 Fund, an index tracker of Nigeria’s top 50 companies by market capitalisation and the Legacy Banking 10, a quant driven semi active fund investing in Nigerian Banking shares will each be launched with N3 billion under management. This will bring total assets under management/advise at CSL to N24 billion (US$ 205 million)  making it arguably the largest asset manager in Nigeria in accordance with FCMB’s continued strategy to bring additional returns to FCMB shareholders through more diversified fee based operations.

Market Information from the CSL Equity Market Note. Adeniyi.Adebayo@firstcitygroup.com