Former Perpetual fund manager Scott McGlashan is set to launch a hedge fund, the first product from ...
Former Perpetual fund manager Scott McGlashan is set to launch a hedge fund, the first product from his new fund management company Jade Absolute.
The fund will be an Asian equity long/short vehicle and will be run by McGlashan, together with his partner Fred Creamer, who was most recently managing director of Vickers Ballas, the largest non-Japanese Asian stockbroker.
McGlashan said: "The portfolio will be our 40-50 best ideas on both the long and the short sides throughout the Asian region. It will be highly bottom-up in style, with asset allocation determined by the stock selection.
"There will be some pair trading, where a short position is matched by a long which displays some similar characteristics, for example, by being in the same industry.
"A simple example would be Hong Kong-listed Swire Pacific, which has two classes of shares. If the premium of the 'A' share was abnormally large against the 'B' share, the obvious play would be to be short the 'A' share and long the 'B' share.
"There will also be some naked short positions and in the current market climate we might use index futures and options to hedge out any market risk incurred."
The fund cannot be net short, but it can hold a market neutral position where the long positions are offset by the short holdings. It cannot gear up more than 50%.
McGlashan, who at Perpetual managed Far Eastern and Japan mandates as long-only equity funds, believes there will be no problems adapting to a long/short strategy. He said: "Creamer has been a broker in Asia since 1974, dealing with both long and short disciplines. In addition, I have plenty of experience borrowing stock. In my last position, although I could not go short, I often had to sell shares that I could not deliver, for example, because they were in registration. So I do not find the prospect rather daunting."
In the dummy portfolios run over the last two to three months, short positions have been highly profitable, McGlashan said.
"Of course, running a dummy portfolio is not the real thing, but Japan, for example, is a natural market to go short. A few years ago the 'convoy system' meant that competition between companies in the same industry was limited.
"However, because of the changes we have seen recently, that has changed. The distinction between winners and losers is marked and many of the losers could be on a one-way ticket to bankruptcy."
In practice the only Asian markets where it is possible to short stocks are Japan, Hong Kong, Singapore and Australia, according to McGlashan.
The minimum investment in the fund, which launches on 1 June, is $100,000. The charges are 1.5% annually and a 20% performance fee set to a high watermark. McGlashan says the fund is likely to close eventually to new investment.
"I am a heavy investor in this fund and have no wish to see it become inefficient because of scale. Certainly the maximum size for a fund like this would be around $500m. Depending on the liquidity conditions we may close it at a substantially lower level," he said.
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