Newly formed Edinburgh-based fund manager Euronova has launched a long/short small cap European equi...
Newly formed Edinburgh-based fund manager Euronova has launched a long/short small cap European equities fund.
Fund managers David Houston and Amanda Swanson, who launched and ran three Kempen Orange funds until March of this year, will manage the 35-40 stock portfolio. The fund aims to produce positive absolute returns in excess of a risk-free rate equal to the 12-month Euro LIBOR rate.
The Euronova Smaller Companies fund is Cayman Islands registered and is listed on the Irish Stock Exchange. The minimum amount that can be invested is E100,000. There will be a 1% management fee and a 20% performance fee.
The initial investment period will close 29 September 2000, with monthly dealing thereafter. The fund will start trading from the start of October.
Houston and Swanson have a strong background in European stocks, having worked not only for Kempen, but, between them, for Morgan Stanley, Walter Scott, GAM, Scottish Life and Ivory & Sime, where they both spent their formative years.
Growth stocks will be the primary focus of the fund - Houston and Swanson look for companies with strong business franchises, sound financials and stock market-orientated management. But they also look for a specific catalyst that will push the company into outperforming. Similarly, short plays will not be made simply when a company is regarded as fundamentally weak, but when there is an identifiable event that could trigger a market change.
Euronova's investment strategy does not rely on the recovery of the small cap markets, but on the relative sizes of those markets. A 6,500 stock universe should allow greater potential for outperformance than a few hundred large cap stocks. Within this number, Houston thinks the top 50 small caps should outperform the top 50 large caps.
The fund has already attracted around E4m and Houston confidently expects the fund to launch with a minimum of E7.5m. As the fund grows, the number of holdings could increase up to about 50-60 stocks. Beyond around E150m, Euronova will consider the possibility of closing the fund.
Houston said: "It's primarily an institutional product. But within that it's possible for individuals to qualify as non-private investors."
The fund has a broad mandate, giving the managers the flexibility to keep large cash holdings. Custodian Goldman Sachs provides a gearing facility. It is unlikely that the fund will shift into any of the more rarefied asset classes but will stick at long/short equity trading. This is simply because these two strategies require stock-picking skills which is at the heart of Houston and Swanson's expertise.
It is also on the back of this specialisation that the two managers have been appointed sub-advisor to a long-only European small cap fund for an unnamed Swiss bank. The fund will use the bank's own distribution network and should be available by the end of October.
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