UK-based Atlantis Investment Management has given unit holders in its China Fortune Fund the option to exchange their share of the liquid assets in the portfolio for units in a new fund or to redeem their holdings. The fund has been suspended since October and unit holders have been asked to vote on the proposed reorganisation at a meeting on March 25.
The Atlantis China Fortune Fund is an absolute return fund focused on Chinese equities. The portfolio sought to preserve capital through the use of cash and index futures where appropriate, but did not short individual stocks.
The fund invested across the market cap range and had full exposure to H-shares, red-chips, P-chips, China A-shares (via P-notes), China B-shares, ADRs and companies in the pre-IPO stage. The fund's goal was to invest in undervalued growth stocks, focusing on companies that exhibited below market average valuation multiples, a strong brand, significant market share, management ownership and solid balance sheets.
Due to a flood of redemptions caused by a deterioration in performance, Atlantis suspended dealing in the China Fortune Fund in order to restructure the portfolio. The proposal to transfer liquid assets to a new vehicle called the Atlantis New China Fortune Fund is aimed at providing an alternative to those among the more than 300 unit holders who wish to remain invested.
The fund, managed by Yang Liu, has bounced since the trough of the market late last year, and at the end of February 2009 had delivered an unofficial NAV return of 28.1% over 3 months, compared with the negative MSCI China Free Index return of -1.91% over the same period. Yang manages 74% of Atlantis's total AUM, in a variety of public funds and segregated mandates. Yang is supported by a team of 10 based in Hong Kong and Shanghai.
China Fortune Fund was launched in July 2005. The fund's performance deteriorated last year, losing 66% of its value by end-2008 -- a sharp decline from its 64% gain in 2007. The fund's AUM in December was around $125 million, down 83% since the start of 2008.
The majority of the fund's assets were invested in Hong Kong-listed Chinese shares last year. Around one-third of the fund is invested in illiquid shares of companies suffering delays in IPO plans due to the weak market conditions.
The planned Atlantis New China Fortune Fund will not invest in pre-IPO companies.
Apart from a vote from the fund's unit holders, the proposal needs to be cleared by the Irish Financial Services Regulatory Authority and the Irish Stock Exchange, where it is listed.