Big Fund Launch in the Wings?

"No matter how rich you become, how famous or powerful, when you die the size of your funeral will still pretty much depend on the weather."

Michael Pritchard

GS Asia's trading team that ran the HK in-house principal strategies operation is set to break-away with 30+ employees in tow and a sum believed to be US$1 billion in AUM. This would make it one of the biggest fund launches in quite a while. Investors beware: The road ahead for Azentus Capital is not likely to be all smooth.

Don't get me wrong - starting out of the gate with a considerable slice of capital is going to help. An expected rally in global equity markets led by the ultra high Asian economies is also going to help too; especially if global growth rate estimates in 2011 hit the 5% as some analysts have recently stated (Jim O'Neil, GS, CNBC 12/22).

The trick will not to dedicate that money to "developed world" strategies arb-ing Asian stocks vs. US or European ones. The trick will be to build a truly diversified pool of alpha and beta drivers including a variety of duration and liquidity plays. Asia's equity markets are not efficient or deep enough to make money consistently on the short side, especially with retail playing such a dominant role in the greater Chinese markets.

Taking an approach that mixes in low volatility with high volume strategies including distressed debt, M&A and investor activist situations should ensure a sufficiently diverse mix of strategies. In short, Aventus should plan for portfolio cushions to the inevitable 20-25% slides in the Indian and Chinese stock markets. They are likely to be in a good position to get access to increasing numbers of IPOs that emerge in 2011/2012.

Additionally, the firm should make moves to draw from a wider audience of regional investors. That means cracking the Japanese pension market, Taiwanese, Korean and Thai insurance companies in addition to making some headway with a number of the regions top SWFs. A tall oder perhaps, but one that should prove more stable than "bank money" which may yet flee back home on the first signs of global financial panic.

It might also be an interesting idea to consider an early move towards IPO in order to incorporate more capital and a broader investor base yet in the growth plans of the hedge fund. There are already a number of billion dollar funds in Asia; and not all of them have a staff of over 30+, so watching fixed costs will be an important function of the COO at the new entrant...Mahalo!