Jeffrey Hodgson / Reuters
Hong Kong: Hedge fund manager LIM Advisors said Wednesday, 21 November, it expects the launch of its new Asia special situations fund to raise $500 million, reflecting strong global demand for alternative investments in the high-growth region.
Launching at a time when debt and equity markets have seen a spike in risk aversion, the fund will invest in less-liquid credit oriented instruments and transactions in sectors including infrastructure, utility and agriculture, LIM executive directors Dean Van Drasek and Steven Petersohn told Reuters.
Smaller Asian markets such as Indonesia and the Philippines will be among the top targets for investment, they added.
“We don’t like China that much because its regulatory issues do not give us much comfort. Also, it’s too hot a market. People are willing to accept covenants there that we would not find acceptable. So we have very little in China,” Van Drasek said.
“The other market where we hope to have much more investment in is going to be India, but we’re starting from almost ground zero,” he added. “In two years we’re expecting it to be as much as perhaps 15%.”
Hong Kong-based LIM has already launched the subscription process for the new fund and expects it to begin investing either in December or the first quarter of next year, Van Drasek and Petersohn said.
The new fund will build on trading strategies developed in the firm’s flagship LIM Asia Arbitrage pan-Asian multi-strategy fund, which has more than $700 million in assets. The special situations strategy within that fund has produced annualized returns of more than 16% over 8 years, the firm said.
These include investing in less liquid but secured debt instruments and transactions, with an equity component if possible.
The launch comes after credit market turmoil slammed funds managed by some of the most venerable firms on Wall Street.
Bear Stearns saw the collapse of two of its hedge funds earlier this year, while Goldman Sachs Group and investors pumped $3 billion into a hedge fund that plunged about 30% during a week in August.
Van Drasek said because the investment strategy doesn’t rely on high leverage to generate returns and has a strong focus on debt, secured or supported by assets and cash flow, he did not expect the current market turmoil to discourage investors.
“All of those features tend to play better when there’s a little bit of volatility in the markets,” Van Drasek said. “The fact that we have had this turbulence I think has been relatively positive for us,” he added.
“Quite a few firms are saying to us they’ve got quite a bit of long-short (equity hedge fund) exposure in their portfolios, but they probably don’t have enough quality credit exposure or credit exposure which is not highly leveraged.”
The new hedge fund would be the ninth launched by LIM, which was the 17th largest Asia-based hedge fund manager at the end of March, according to Institutional Investor’s Alpha magazine. The firm has more than $1.1 billion in assets under management.
LIM was set up in 1995 by fund industry veteran George Long, who will co-manage the new fund with Van Drasek and Petersohn.
Most of the investment in the fund is seen coming from European institutional investors such as pension funds, and the rest from the US and Asia, Van Drasek said.
Once the fund hits $500 million it will be closed until that amount is fully invested, which is expected to happen over the course of 2008. After that, it will initially only be reopened to existing investors, Van Drasek added.
The new fund will enable the firm to take larger positions in less-liquid securities than the existing fund, partly because it will have quarterly rather than monthly redemptions.
There will also be a 5% redemption fee in the first year which begins declining by 1% per quarter in the second year. The fund carries the industry standard 2% management fee and 20% performance fee.