Swiss Investment Managers, the alternatives trading firm, is set to launch the first hedge fund in Europe and the US that invests solely in the share dealings of company directors and senior executives in their own firms.

The new vehicle, called the Directors Dealings Fund, will invest in listed companies and base its investment decisions on publicly-announced reports of transactions by company directors and senior management who are using their own money to buy or sell equity in their firms.

The Luxembourg-listed fund is intended to appeal to high net worth individuals and family offices, as it will invest in large- and mid-cap European and US companies that offer favourable liquidity terms, the firm said in a statement.

The fund is managed by Athanasios Ladopoulos, a partner of Swiss Investment Managers, and supported by George Muzea, who is considered to be the “father” of the so-called "director dealing and corporate insiders transactions strategy".

The strategy has a low (between 0.2 and 0.4 per cent) correlation to equity capital markets and targets low volatility with strong risk-adjusted returns, according to SIM. The fund is aiming for a risk-adjusted return of about 15 per cent or more.

“Directors and executive management team members generally know more about the companies they manage than outsiders, such as broker analysts or fund managers,” Ladopoulos said. “When directors and executives buy significant amounts of shares, that’s a strong signal something good will happen. Conversely, when they sell significant amounts of shares, it’s a signal of tough times ahead. DDF combines intellectual capital with proprietary investment management mechanisms to analyse such activities and thus is well placed to take advantage of these dealings.”

According to a model performance test, the Directors’ Dealings Long Portfolio delivered performance of 14.4 per cent between October 2010 and July this year (coming ahead of the falls in markets in August). The Directors’ Dealings Short Portfolio did even better, at 24.02 per cent. Those gains compare, for example, with a rise in the S&P 500 Index of US shares of 12.9 per cent over the same period. The HFN Long/Short Equity UCITS Index, by contrast, fell by 2.83 per cent.

The fund, which has an estimated capacity of between €500 million to €2.0 billion, requires a minimum investment of €200,000, SFr200,000 or $200,000. There is monthly reporting of net asset value and a return target greater than 15 per cent. The fund is an open-ended vehicle.

(Additional reporting by Tom Burroughes)