Charlemagne Capital vehicle to buy into funds trading at a discount to NAV
Charlemagne Capital, the newly rebranded Eastern Europe investment operation, formerly part of Regent Pacific, is set to launch a closed-ended fund arbitrage vehicle.
The Cayman-domiciled fund will aim to buy into closed-ended funds trading at a discount to NAV. While Regent has operated within this strategy since 1991, the vehicle will, for the first time, attempt to hedge out market exposure and make money purely by narrowing discounts.
Every long position held will have a mirror short position, based on a trust's top 10 positions as well as index futures or swaps, if appropriate.
The focus will be on funds that have a forthcoming shareholder vote and the ability to buy or tender for shares, as well as a specific reason for open ending, such as poor performance or a large discount to NAV.
Varda Lotan, head of marketing at Charlemagne, said: 'For us to contemplate taking a position in a fund it must be trading at a wide discount of between 15% and 30%. There must be an ability to narrow that discount and there must be an opportunity to hedge the fund's underlying equity risk.'
Once these criteria have been met, manager Carlos Horner will attempt to ensure that an efficient hedge for the fund can be managed, according to Lotan.
He added: 'This stage of analysis will focus on the target's portfolio concentration, the regularity and accuracy of information on the portfolio, a low historical portfolio turnover, an ability to short-sell the portfolio's principal holdings and the ability to short-sell index futures or index swaps against remaining market exposure.'
Lotan also emphasises that the fund will take a more benign approach than Regent vehicles have used in the past, aiming, wherever possible, to work with the directors, management and shareholders to develop proposals for realising value.
The investment universe is considerable, comprising around 1,000 potential targets, including more than 500 New York-listed funds, 120 offshore funds and more than 300 London-listed vehicles.
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