Singapore-based Blue Rice Investment Management (Brim) has launched its inaugural absolute-return strategy, the Brim Asian Credit Fund.
Brim is the creation of Guan Ong, who moved to Singapore last year after fulfilling his three-year role as the founding chief investment officer of the Korea Investment Corporation. Before that, he had served as CIO at Prudential Financial's investment trust in Seoul.
As CEO, Ong leads a six-person team consisting of two investment professionals, two analysts and two operations personnel. He says the fund has one anchor investor that has allowed it to get started this month. He expects the fund to be managing $30-50 million by early 2010.
The strategy's capacity is ultimately around $1 billion. It concentrates on Asian corporate bonds denominated in US dollars or other global currencies. Ong says he is deliberately avoiding local-currency bonds because he does not want to confuse currency risk with credit risk.
The strategy invests in investment-grade and high-grade paper, but not default situations. Ong says the region's strong macro story and balance-sheet fundamentals mean that the opportunities are not to be found in the distressed space.
Brim has appointed Credit Suisse as its prime broker, Deutsche Bank as its administrator, Deacons as its law firm, and Ernst & Young as its accountant.
In addition to wanting to work with well-known service providers to avoid the whiff of Bernie Madoff-type corruption, Brim is also utilising their platforms. For example, it will trade off Credit Suisse's systems and will use Deutsche Bank's existing platform for reporting purposes.
Portfolio risk management is done on a proprietary basis, although Ong says he is reviewing possible third-party vendors' systems. He also has instilled limits on portfolio construction, to avoid overweights towards any given geography, sector or issuer.
As an absolute-return vehicle, the fund has no benchmark, but Ong says he aims to return 10-15% in 2010. The fund can employ modest leverage, up to two times the portfolio.
Ong declined to specify volatility levels. This is because the strategy does have exposure to more than just Asian dollar-denominated credit. At least 80% of the fund must be exposed to such bonds, to convertible bonds, to related credit-default swaps, to US Treasuries or to US Treasury futures.
Up to 20% of the portfolio can also be allocated to non-Asian bonds or equity indices, used for hedging purposes. The fund does not intend to invest in specific stocks but has the ability to hold such exposure on the back of convertible bonds that turn into equity positions.
Ong and his team can also take short positions via CDS trades, by shorting Treasury futures, by buying put options on equity indices, or buying puts on credit sectors or specific issues.