Private credit might be less attractive than it was last year as investors rush into the market, but there are sweet spots to be found.
Its principals are Fife Whitman and Paul Sheehan. They originally worked together at Lehman Brothers in Hong Kong, Fife Whitman as a real estate research analyst and Paul Sheehan as head of banksÆ equity research. They then went their separate ways. Whitman ran the Credit Suisse Asset Management office in Hong Kong, then moved back to New York, where he worked for Putnam as a global emerging markets manager, and next to Marathon Asset Management to manage global equity risk. He subsequently opened MarathonÆs office in Hong Kong. In this new venture he takes the role of chairman and CIO.
After Lehman, Paul Sheehan joined ING Barings as managing director heading up bank equity research. Thereafter he advised ING on banking strategy. He will act as CEO and research director of John Locke.
ôIt makes sense now because globalising trends are coming increasingly from emerging markets,ö says Paul Sheehan in Hong Kong. ôThe China theme is very clear, plus that of supply chains from other emerging markets. Another feature is the growth of the middle class in these countries and the impact this demographic has on increased consumer demand.ö In addition they envisage trading developed markets where stocks can be perceived as upstream or downstream of a hot performing sector or company in an emerging market, where there is a identified knock-on effect.
John Locke currently has just below $25 million in assets under management and targets a fund size of $100 million. Marketing will be directed towards trusts, pension funds endowments and other institutions. At this nascent stage, there is no involvement yet from funds of funds.
The strategy is a low risk exposure to emerging markets, with anticipated monthly returns of 1-2% and volatility commensurate with that approach. Derivatives will be used for hedging purposes, but the fund will not be writing options or seeking to trade volatility.
Fees will be 2% and 20% with a 1 year soft lock-up and 1.5% and 20% with a 30-month soft lock-up. Performance fees are subject to a high water mark. ôWe donÆt believe in hard lock-ups in an emerging-market context,ö says Sheehan.
The Hong Kong operations will constitute a research office, with no trading or marketing, though if all goes to plan a research team of four to five analysts will be hired, based either in Hong Kong or New York. Before then the Hong Kong office will be upgraded into a fully registered operation with Hong KongÆs SFC. The firm is also in voluntary compliance with the SEC and will be registering in due course.
Goldman Sachs is prime broker and the fund administrator is the Republic of Ireland-based Goldman Sachs Trust. ôGoldmanÆs are a bit more expensive,ö says Sheehan, ôbut their access to corporate stocks and investors was the strongest that we saw.ö
The US lawyers are Sidley Austin and its Cayman Island lawyers are Walkers. The auditors of the fund are Ernst and Young.
John Locke was a 17th century English empirical philosopher. He invested in Africa and the New World and devised theories of valuation for services, products and labour. He based his ethical theories upon a belief in the natural goodness of humanity. He believed that immediate pleasures must defer to a sensible regard for oneÆs ultimate good, including rewards in the hereafter. He was a major influence on the drafters of the United States Constitution.
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