Hong Kong-based hedge fund, Doric Capital, will launch its Doric Small Cap Fund (a long/short fund investing in Asia including Japan) at the end of the month. Doric recently soft closed its flagship Asia ex- Japan Doric Focus Fund at about $200 million after raising over $150 million in the last nine months.
It has also added directors and is building a research team in India to bolster the expanding business.
Doric's managing director Michael Nock explains how the discipline involved in identifying small cap stocks leverages off the existing expertise his team has developed.
"In the process of running our Asia ex-Japan fund we saw many opportunities for investing in small cap stocks which performed very well. However due to our risk management requirements and liquidity constraints we maintained a very limited exposure to these stocks in our portfolio," he says.
Nock says the rationale behind the new launch is to capture the higher performance of these less liquid small cap stocks in a smaller sized fund.
"The minimum benchmark for us to invest in any security in the Doric Focus Fund is an expected 15%-20% return per annum," he comments. "Typically with small caps we'd forecast a higher return than this."
Nock predicts the new fund will launch with about $10-15 million and plans to close it at $50 million.
"Several of Doric's existing investors have already indicated an intention to invest in this fund, so I'm not too concerned with asset raising," he adds.
Doric has recently added a host of new members to its team. Nock explains the growing size of the team has enabled the firm to support the launch of its new fund, and the expansion into new markets.
Joining Doric as an independent director for the new fund is Richard Katz.
"Having Richard on board gives us a lot of depth. He's been active in emerging and Asian markets for 26 years," comments Nock. Katz has worked with Drexel, and ING Barings leading the development of their Asian and Japanese equities franchise.
The new fund will also see Doric including Japan in its portfolio for the first time.
"We're hoping this will give us a toe into Japan and may prelude the start of a Japan only fund," says Nock.
Ron Demeza has recently joined the Doric team to focus on the Japanese part of the small cap fund. Demeza, who is based in Tokyo, has been looking at Japanese stocks for over 30 years, having spent time with Yaminichi, Salomon, County NatWest and Chase Manhattan during that period.
India is the other region Nock wants to pay more attention to, both from a resource and an investment point of view. "We're establishing our research office in Bangalore and have already recruited four very talented analysts in India to join our team to look at investment opportunities both around Asia and within India itself," says Nock.
Earlier this year, James Newman left his position as senior portfolio manager at Citibank to join the Doric team. Newman joins Nock, Howard Wong and Nancy Liu as shareholders in Doric's fund.
"We have a very team-based approach. The key has been to build up a group of like minded people who feel comfortable with the way we run our investment process," says Nock.
Doric has appointed Bank of Bermuda as fund administrator and Morgan Stanley as prime broker for the new small cap fund.
"While we've been extremely pleased with Deutsche as our prime broker for the Doric Focus Fund, Morgan Stanley have been particularly helpful to us over the years and we wanted to use this as an opportunity to say thank you," says Nock.