Nordea hopes brand and low volatility will sway clients

What comes from Scandinavia, offers good value for money and has wide appeal throughout Europe? You could be forgiven for thinking of cheap pine furniture with oddly incongruous names, but the latest Nordic export grabbing European attention is hedge funds.

As a growing number of investors pile into the mass of hedge funds available in New York and London, it is getting harder to find good ones. Now, Scandinavian funds are starting to get noticed as an untapped hedge fund resource.

Nordea Investment Funds is among the regional players getting ready for a surge of interest. The Sweden-based company plans to launch three hedge funds on May 2.

In understated Scandinavian style the fund manager has been running successful hedge funds for at least eight years, but has not made a song and dance about the products, which had small volumes but strong performance.

The three new products will be on-shore versions of pre-existing offshore products, which until now had been sold quietly to private banks.

The new suite of Sicav II-stamped products will be marketed to all types of institutions, but particularly funds of funds. The long-short European equity vehicle will be based on a pre-existing fund that has delivered a 7 per cent annualised return since launch three years ago.

Lars Erik Høgh, head of Nordea Alternative Products, argues that the fund offers something truly different in a crowded area of the hedge fund market: “We’re one of many European long-short funds but this fund’s volatility is just 4 per cent, which is close to that of a short-term bond. Others are doing better in terms of returns but you will be hard pushed to find a long-short fund with such low volatility.”

He is also gambling that the respected Nordea brand will give the fund an edge: “Our hope is that if there is a minor player next to us, the Nordea name will sway people.”

Arbitrage fund

An arbitrage fund is also on the launch pad. This too is the new incarnation of an existing fund, which was launched eight years ago and has delivered an average of 20 per cent annually. The onshore version will remain under the eye of hedge fund manager Ole Jason Rollag, but it will be less risky, aiming for both returns and volatility of around 11 per cent.

The fund will aim to make money from the differences between interest rates by buying currencies. It will have the possibility to leverage up to three times.

Risk will be controlled in the arbitrage fund, according to Mr Høgh, by maintaining “a nice allocation to Danish mortgage bonds – probably around 50 per cent – which makes things very safe, since the bonds are AAA-rated.” The Danish bonds will also offer European investors a tempting element of diversification for their portfolios, since they are unlikely to have come across the asset class before.

The third product is a managed derivatives fund. The offshore version has been around for five years delivering around 11 per cent a year. The new on-shore fund will aim for the same level of returns by trading volatility.

It might be argued that the present lack of volatility makes this a strange time to roll out such a vehicle. But Mr Høgh says: “If we can achieve the good results that we have done recently through tough times, including the equity bear market and September 11, then we will continue to do well in the future. For the moment, we are not trading a lot and we are keeping leverage to a minimum because we are waiting for the equity markets to drop and then volatility will pick up.”

Mr Høgh says: “I will be happy if there is E100m in each product after a year”. He has every chance of achieving these loose targets, as long as strong performance continues. It will no doubt also help if Europeans remain enthralled by Scandinavian innovations.