What’s in it for Sygnia lenders?

THEY’VE TO MOVE TO OTHER PRODUCTS CEO: No major liquidation instructions and the withdrawals could be orderly.

When Sygnia’s chief executive Magda Wierzycka announced that the company is closing all of its fund-of-hedge-fund products, she was adamant that this was fully in the best interests of investors.

“This has cost us millions in fees,” she said. “We have closed down very profitable products.”

Wierzycka said Sygnia made a decision that it could not continue paying the high fees charged by hedge fund managers when their performance did not appear to warrant it. What this means is that all investors who have been in these funds have to move to other products. For Sygnia’s institutional investors, this has already happened.

“We’re at the end of the process, not the beginning,” she said. “The only money left is a few retail investors, but it’s not a lot.”

She said that Sygnia managed the process of withdrawing its funds very carefully to ensure that no investors were compromised in the process.

“We did it gradually over a period of four months,” she explained.

There were therefore no major liquidation instructions and the withdrawals could be orderly.

Sygnia also only communicated its decision to close its funds to the market after the majority was completed.

The firm ensured that it could offer an alternative.

Since investors had been using hedge funds in their portfolios as defensive strategies that offer returns ahead of cash but with some capital protection, Sygnia made a decision to introduce a fund of structured products that could perform the same role.

In the past, almost all structured products were highly opaque offerings that charged layers of fees and investors had little idea of how they worked. However, there is a new generation of products that have become far more transparent and more cost effective.

About 90% of an investment in this type of structured product will be placed in a low-risk investment with a predictable return such as a money market fund or a bond. The remainder is used to buy a call option of the upside of the equity market, which is usually capped.

What that creates is a pay-off profile that offers complete capital protection.