How it works
First loss – Through this arrangement each participating portfolio manager absorbs the losses up to a defined amount, usually up to 10% of the total allocated trading capital. For example, if a manager requires $10 million allocation, then they will deposit $1 million with a remaining $9 million being allocated by Falcon. The $1 million first loss deposit by the manager is used as collateral to protect investors from losses of up to 10%. Therefore, all losses are allocated to the manager’s capital first. Through this structure, investors experience losses only if the negative P&L exceed the manager’s 10% collateral.
Benefit – The aim of the program is to align the interest between investors and managers. As managers are expected to participate in the risk of their managed portfolio, in return they will be well compensated. Falcon offers the highest rate of performance fee to managers among first loss providers.
Structure – Falcon’s first loss capital program can be structured in two ways – Managed accounts or fund vehicles. We are the only first loss provider to offer capital in a form of allocation to managers’ own fund, resulting increased AUM.
Managed accounts – Through this structure, managers are required to open a segregated account with one of our prime brokers to allocate their first loss contribution. A separate trading account will be created with the total allocation available for trading. Any losses accrued in the trading account will be reflected on manager’s segregated account.
Fund vehicles – Falcon is the only first loss provider to offer capital through a fund structure, which allows managers to show the allocation as part of the AUM in their fund.
Segregation of assets – As a multi manager hedge fund platform, we have a long history of managing risk for investors, while providing operational support to our managers.
Our innovate structure allows investors and managers to maintain the ownership of their assets with our prime brokerage network while participating in the program.