A long/short equity fund helmed by a pair from Kingdon Capital Management’s Asia portfolio and seeded by Samena Asia Managers (SAM) is set to launch on March 1 with a target of raising $100 million by year-end.
Wuzhu Asia Partners was set up in Hong Kong last year by Kyu Ho, the former director of Asia research at the $3.7 billion US hedge fund Kingdon. Other team members include Kevin Ji, a former analyst for Kingdon and Maverick Capital, and veteran Martin Currie operations manager Grant Suttie, who serves as Wuzhu’s chief operating officer.
The pan-Asia fund utilises a quant screen – a proprietary quantitative filtering tool – as a starting point for its stock-selection process. Stocks that are put forward are then evaluated by Ho and Ji, who will choose those that they predict will generate a return on an individual basis over a timeframe of about 12 months. By that time, each security – both on the long and short sides – is expected to reach a price target due to anticipated catalysts, such as a corporate event.
The quant screen is objective, as it screens stocks based on pre-determined metrics, whereas other hedge fund managers would tend to select stocks based on brokerage reports, says Ho, who serves as chief investment officer for Wuzhu.
“The process is quite independent and would tend to have a contrarian stance to it, as it identifies mispriced stocks,” says Ho. A downside is that the fund will not follow market momentum. “Which means that if the market is up 40%, the strategy likely would not be up as much,” he notes. “But when the market is down, I expect the strategy to generate returns.”
Ho employed the stock selection process, to varying degrees, while at Kingdon and also US hedge fund Cantillon Capital Management, where he had previously worked as an Asian equity analyst.
“You want to buy stocks that no one wants to touch and expectations are super-low,” he says. “You also find great short opportunities in stocks that everyone owns and expectations are unrealistically high.”
At any time, Wuzhu will have between 20-25 stocks in the long portfolio and 20-30 short positions. The short positions would typically outnumber the longs, Ho added. The fund, which has a capacity of $1 billion, targets returns in the mid-to-high teens.
As the strategy is designed to generate returns over a longer-term basis, rather than on a consistent monthly basis, Ho is hoping to bring investors onboard who are au fait with the timeframe. Wuzhu has three investor classes: a 12-month soft lock-up with quarterly redemptions, and one-year and three-year hard lock-ups with discounted fees.
“For me to execute this strategy well, I need a long-term horizon,” says Ho.
SAM, which provided start-up capital to Wuzhu through its Angel Fund I seeding vehicle, is the cornerstone investor.
Julius Wang, who heads SAM, said Wuzhu was a stand-out among dozens of start-up funds that the firm had looked at. He added that the team is part of a growing number of talented and experienced Asian fund managers seeking to return to the region from large hedge funds or bank proprietary trading desks overseas. “They bring a wealth of experience to the markets they trade.”
Ho and Ji last year relocated from Kingdon’s base in New York to Hong Kong, while Suttie moved to the city from Edinburgh, where he had been serving as Martin Currie’s investment operations manager. A second analyst is expected to join the Wuzhu team later this year, says Ho.
Goldman Sachs and Morgan Stanley are the prime brokers for Wuzhu, while Northern Trust is the administrator.