Gilles du Fretay has been offering hedge funds of funds in Paris since 1986, which makes him Europe’s longest established player, he says. What’s more, he’s been providing them mainly through onshore French funds, which is one reason perhaps why he may be one of the continent’s best kept secrets.
The COB, the French financial regulator, has only last month announced that it was putting regulations in place for funds of funds, which up to then were virtually unregulated. Because of this, Du Fretay, who operates through his company HDF Finance has avoided getting embroiled in the retail market and concentrated on the institutional and the private client arena.
It has taken him nearly two decades to build up E1bn in assets, on the back of some dazzling performance.
Of HDF’s range of 22 funds, 17 are onshore and five offshore, long-short strategies account for just under one half of assets under management, with relative value strategies accounting for a third of assets. There are some long only funds, but these only hold 8% of assets.
But what is unusual about HDF is how it uses the multi-manager concept, where it diversifies very widely. Funds will invest in 15 to 50 underlying funds, and all in all 200 different funds are used. “A large number of managers are used to help control voalatility,” he says.
Research has to be the key and du Fretay reckons over 4,000 pre-selected funds are on its database from which it picks those its blends in its strategies and gives money to. The whole objective is to control and reduce risk, but still provide the returns that are “comparable to directional managers”, as he puts it.
So macro-economic analysis is done using an external economic adviser Sorbonne economics professor Christian de Boissieu, who has worked with HDF for 12 years and has just been appointed as an economic adviser to the French government.
“What is happening at a global macroeconomic level will affect the world economy and investment conditions, relevant for market neutral strategies, long-short and commodities, du Fretay points out.
“Our database shows how different strategies work in different economic cycles.” The portfolios are structured in the light of these developments, he says. This is where the in-house research team of five undertakes manager methodologies, fund manager research and portfolio optimisation.
Then a tight control is kept on performance. “We have monthly reports to investors on performance, with managers being monitored by the team on a weekly basis,” he says. “We think transparency is the most important issue – and it is undoubtedly getting better in the industry.” He points to the problem of relative value investing and obtaining the objective valuation of OTC positions in particular. It may be a matter of avoiding certain managers if there is a danger that the valuations can be manipulated. “We would like to see these valuations done by independent professionals.”
When he left Citibank in the 1980s to start HDF, his mission was to help clients choose the managers to put their money with. This has always been the sole business, so multi-management is not a new departure, as it is for many mainline managers who have come into the multi-manager market.
A number of HDF funds have been turning in chart topping performance. “Some of this has been against single manager funds, despite having to charge an extra layer of fees,” he points out with pride.
Du Fretay believes that with this track record he will be able to attract more money. “We would like to grow by 25 to 30%, attracting another E300m, but we do not want to grow too quickly.” He sees this coming from private clients and from institutional investors in Europe. “We could take up to E50m from anyone investor.”
While he is pleased that the COB has taken the step of regulating hedge funds, he is not tempted to go near the retail market. His concern is that the big groups move in on the market. “It cannot be right if banks offer fund of funds through their branch networks, as they will attract too much money. They will find it difficult to invest this properly,” he maintains.

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