CLSA takes action on liquidity shortage

CLSAÆs new long/short water fund will focus on Asian listed and private-equity opportunities.
Even as the effluvia in Hong KongÆs harbour gets ever more toxic, CLSA Capital Partners has launched the Clean Water Asia Fund. It will be run principally by Andrew Pidden and Anthony Wilkinson of the Clean Resources Asia Fund, which launched in 2006 and now has assets of $60 million under management.

The new fund has been seeded with $5 million of CLSAÆs money and launches with $12 million of assets.

As with the sister Clean Resources Fund, there are two classes of shares in the new fund. This arrangement boils down to an æAÆ share which will concentrate just on listed equities and a æBÆ share which will be a side-pocket for private-equity deals. Unlike the first fund, the private-equity component of the water fund may be higher, reaching 50% of the total fund size.

Both the concept of the new fund and the higher private-equity limit is in response to investor demand that was noticed in the initial fund. That fund already had a 25-30% portion set aside for wastewater exposure, but investors said they were interested in a pure water play. The investors also indicated that they were happy to take on convergence-style private-equity deals. Whilst there are no lock-ups in the new fund, the B-share investors have to wait until exits take place on their deals before they can get their money out.

Kerryn Tay has been hired from CIMB as a senior research analyst. She has been a well-known regional water analyst during the last decade. Another analyst will be hired in due course.

Fees for the new fund are 1.5% and 20%. The target size is $250 million for initial soft close and $400 million ultimately. The fund is not being managed for volatility, but targets annual returns of 20%. The maximum leverage will be 200%.

The Clean Water Fund will be pan-Asian but the managers told AsianInvestor that Chinese opportunities currently look most interesting, highlighting listed A- and H-share companies involved in the water sector. There are Singapore companies also active in the sector, but these have already had strong price run-ups recently.

To keep them busy on rainy days, the managers see profit to be made on finding shorting candidates in the Asian water sector. These will include over-valued companies. Additionally the fund will also consider shorting those companies with obligations to treat wastewater that have fallen foul of their task, and consequently are penalized by an increasingly tight regulatory regime in China.

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