New sports fund ready for kick-off
A sound vehicle or ethically dubious? Chiara Cavaglieri reviews both sides
Sunday 28 March 2010
There is no doubting that sports betting is very popular and big business, but could it ever really be described as an investment?
Well, fund-management group Centaur Global would like you to think so, as it is to launch – on 31 March – the UK's first regulated sports fund. The Galileo Absolute Return Fund, described as an "experienced investor fund", aims to tap into the sports-betting markets, rather than the financial markets.
Centaur has been running similar, unregulated, funds for the past 10 years, and can boast some impressive results. The Centaur Sport funds have claimed returns in excess of 40 per cent per annum over the past five years. The Galileo fund will focus predominantly on football and other major sports, including tennis and rugby, but Centaur is quick to quash any accusations that they are providing a gambling service.
"We're not a gambling company, we're a trading group, but our markets happen to be sports probability and statistics," says Tony Woodhams, managing director at Centaur Group. What's more, Mr Woodhams says that, crucially, sports markets aren't related to other asset classes – such as shares or property.
"It's an economy proof environment," he says. "The gambling industry is pretty resilient; when times are bad people tend to bet as much, if not more than they did in good times."
The fund trades on global sports exchanges including Betfair, Betdaq and Sporting Index.
"Returns are linked to bets that people are making and the arbitrage [the pricing differences] between the various bets made. The description as a sports fund is disingenuous in that sense," says Danny Cox, from independent financial adviser Hargreaves Lansdown.
However, this is actually where the potential of this fund lies. Armed with the right tools and expertise, an investment team can potentially reap the rewards of an industry that has much of its emphasis based around emotional connections, rather than logic. But what expertise can you expect from the Centaur team?
Centaur says that they will make their money trading on football statistics and probabilities. This works through analysis of various technical and historical data; from examining players, teams or weather to using sophisticated software that holds 10 years' worth of data. This is all then referenced against actual prices in the market to identify any value.
Essentially, the investment team behind the fund will be on the hunt for statistical anomalies and will scour the markets for the best deals and stand-out prices.
This all sounds very clever, but other aspects of the fund aren't quite as reassuring. First, although the group is authorised by the UK Financial Services Authority, it's not regulated by it, so investors will have to rely on Gibraltar Financial Services Commission for protection.
"Investors should only consider this once they are fully aware of the protections they have as it is backed by the Gibraltan government. The total amount of compensation is below UK levels at the sterling equivalent of €20,000," warns Adrian Lowcock, from independent financial adviser (IFA) Bestinvest.
There is also the significant issue of whether investors are comfortable with putting their money in a fund that takes profits from gambling. As well as being high-risk – and, some would say, ethically dubious – the fund is also very expensive to run. It levies a management fee of 3 per cent per annum, a 30 per cent performance fee and stiff early-redemption penalties, starting at 5 per cent in the first year, then falling 1 per cent each year until it reaches zero.
The minimum initial investment of €100,000 (£90,000) is yet another major stumbling block for all but the wealthiest investors, and any additional investment must be the equivalent of at least €25,000.
There are ways around this, however, so if an IFA, for example, wants to put lots of clients into the scheme, it can pool funds together, and as long as that wrapper amounts to the £100,000 minimum, it's irrelevant how much each individual puts up.
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