Nordica Balanced Fund

Investment Objective Long-term capital appreciation with moderate volatility, primarily through a blend of equity and bonds funds managed by external asset managers.

Nordica Balanced Fund (NBF) offers a portfolio that is diversified to varying degrees between equities and fixed income funds, with further diversification achieved across sectors and countries. Varying degrees of exposure to equities and fixed income within the same portfolio can reduce volatility as equities and bonds generally do not move in tandem.

Manager Selection Manager selection is certainly the foremost area of expertise of the NBF. A well structured due diligence process, financial and operational understanding and access to the World’s top fund managers are the core competences of NBF.

NBF strive to select fund managers that generate superior returns for their investors in their respective industry segment. Although diligent fund selection should certainly limit the downside of a private equity portfolio (‘avoid accidents’), most of our clients choose to pick NBF for the upside potential through manager selection.

Portfolio Diversification for the Purpose of Risk Reduction No risk-averse long-term investor would pick only one fund in a sub-segment (such as US venture capital, vintage 2004), but choosing all conceivable funds in a sector may circumvent top quartile returns (‘levelling’). Analysis (see Chart 1) shows that investors need approximately 15 funds for a life cycle of three years in a given sub-segment (eg US buyout) in order to diversify the unsystematic risk.

Basically, one can more than halve the volatility of the final outcome with the appropriate diversification. Given the broad range of funds available, this number of funds can nowadays be chosen without compromising on returns. Many investors, however, lack the necessary size for appropriate diversification, and NBF will allow these investors to reduce manager specific risk in selected segments.

Chart 1: Volatility Reduction

The above illustration is based on a historical simulation using Thomson Venture Economics data for US buyout funds. The volatility of a FoF’s final performance can thus be significantly reduced.