PCIIM and Polaris team up for China hedge fund
San Francisco-based Gerken Capital Associates, an alternative asset manager with over $1.5 billion under management, will soon launch the GCA Greater China Fund. The investment advisors for the new fund are Hong Kong-based PCIIM, the asset management arm of Pacific Century Insurance Group, and Taiwanese financial services firm, Polaris Group.
While PCIIM and Polaris will co-advise the fund, Gerken will be responsible for overall asset allocation, investment strategy, marketing and client servicing.
The fund is expected to launch in mid August with $10 million under management raised from the manager and co-advisors as well as anchor investors from Europe. Hugh McClung, Hong Kong-based managing director at Gerken Capital expects the fund to have a capacity of $300 million.
The fund aims at returns greater than 15% per annum, with an average volatility of less than 15%.
"Our approach combines a disciplined bottom up approach in selecting stocks with the technical capability in market timing to achieve consistent and controlled absolute return," says McClung.
The fund is structured for PCIIM to manage Hong Kong and China markets and for Polaris to focus on the Taiwan investments. McClung points to the track records both firms have in operating their respective hedge fund strategies. PCIIM manages over $50 million in hedge fund assets, and its Hong Kong Equity Fund has returned an annualized 18% since 2002. Polaris' proprietary Taiwan hedge fund, which currently stands at about $50 million, has returned 20% per annum over the same period.
The fund will initially allocate 70% of the portfolio to China, and 30% to Taiwan. Gerken Capital will manage this allocation dynamically in accordance with the investment environment.
"For example, in the next 12 months the Taiwan market may prove to be more robust due to the MSCI re-rating of that market and we could decide to allocate more of the fund's assets to Taiwan," explains McClung.
The combined multi-strategy fund will invest in all asset classes, including equities, fixed income, derivatives and options and foreign exchange. While PCIIM's approach will opportunistically capitalize on available hedging strategies. Polaris' strategy has a more market neutral bent, using convertible arbitrage, index arbitrage, merger arbitrage, spread trading and option volatility trading.
"Having two specialized managers will enhance our ability to deliver absolute returns," says McClung. "In particular a Taiwan focused manager brings a unique approach. Taiwan is a very liquid market with twice the trading volume of Hong Kong. Market neutral strategies work well there."
Gerken's association with Polaris goes back many years. Gerken's founder, Lou Gerken is also one founders of GC Capital, the investment banking arm of Polaris.
For Gerken, this is the second major hedge fund the firm has sponsored in Asia. Earlier this year Gerken teamed up with India's financial services giant, Kotak Mahindra to launch of the WM India Fund, a multi-strategy Indian hedge fund.
Gerken Capital, founded in 1989, specializes in managing and advising emerging market funds as was as differentiated emerging manager strategies. Since inception the firm has managed 17 funds with a combined AUM of 4.5 billion.