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However, Winnington Capital does have big plans for the future. It wants to use this achievement as a platform to become AsianÆs leading alternative investment entity. The managers have a one-year goal to raise assets under management to $1 billion and a three-year ambition to hike that number to $5 billion.
Winnington was founded by the current CIO Kenneth Hung in 1999. He started life as a blue button boy at London stockbrokers Sheppards and Chase in 1983 and later worked at Peregrine and Commerzbank in the equity-derivatives field. Hung was joined in 2005 by Eddie Wong, who had been the chairman of Hypovereinsbank in Asia before taking the role of CEO at Winnington.
The Trophy Fund was launched six years ago and has a 69% annualised return. It is now closed, with assets close to $400 million. It has been popular with niche investors such as ultra high-net-worth individuals and family offices, and Winnington thinks it is the kind of fund to which a sophisticated investor might want to allocate a small percentage of the portfolio, as a means to increase its blended returns on alternative investments, rather than a blow-out 5-10% allocation.
The fund concentrates on greater China, primarily Hong Kong and mainland Chinese equities. In the PRC it takes positions via H shares in order to avoid QFII limitations.
Maximum position limits are 25% of the fundÆs assets in one name at any time, though that level has only been reached twice. One of those positions is still on the Trophy books and has risen in value 10 times from its acquisition price.
ôWe put our money where our mouth is and run a quite concentrated portfolio. Five to six stocks can comprise 60-70% of the fundÆs assets,ö says Wong.
TrophyÆs strategy has been to act as long-biased stock pickers focussing on under-valuation, with a dash of event catalysts and turn-around activity, plus sound macro calls and hedging on dicey market situations via put options.
Core positions are held from six months to three years. Trophy has built block stock-holding positions in targeted companies and currently has a disclosable interest in more than two of its investments. Whilst it likes to work with managements, making recommendations in a soft-activist style, it would not invest having seen the need to urgently shake things up in order to generate stock value.
ôWe made 365% return, though we actually only target 35%. Everything went right in 2006. We managed to contain downside when markets get flushed down the toilet,ö adds Wong. ôWe worked hard so that when the opportunities present themselves, we can be lucky.ö
Gross exposure has averaged 98% since TrophyÆs establishment alongside net exposure of 70%. Leverage is modest at no more than 25% and derivatives usage is restricted to buying options for hedging. The risk position therefore is fairly conservative, helping to counter-balance the concentration risks.
ôOn the now-closed Trophy Fund, volatility was humungous, but in a largely upward direction,ö says Wong. ôInstitutional investors mostly look for a Libor-plus return, not for an outsize 360% return, so we have introduced a new product two weeks ago the Trophy LV Fund, soft launching with assets of $20 million. The æLVÆ in its name means ælower volatilityÆ.
This Trophy LV fund looks at the same universe of stocks as its illustrious predecessor, but the investments will be more wide-ranging, in order to lessen potential concentration risks. No more than 35% will be invested in the five leading holdings with a maximum of 10% of the portfolio per individual stock. Net directional exposure will not exceed 45%.
Target returns are 25% for the new fund on a volatility of 10%. John Ginsbury, who had worked with Kenneth Hung many years previously at Banque Arabe et Internationale d'Investissement, will lead-manage the risk profile of the LV fund, where one of his main thrusts will be to cheapen the costs of hedging.
Fees for both the Trophy fund and the new Trophy LV fund are both 2% and 20%. Service providers are Citigroup and Morgan Stanley as prime brokers, Fortis as fund administrator and Ernst and Young as auditors.
Winnington is also launching the Trophy Property Fund in May 2007. This is a seven-year fund in partnership with Shui On Land. They plan to raise $750 million and capital raising is currently proceeding. A transaction has already been booked and has been warehoused prior to fund launch. This project is a 30 million square foot property development in ChongQing. They have also spotlighted a 25% stake in a Wuhan property project and a 48% stake in a Xintiandi residential development with their partners Shui On land.
Winnington has five portfolio managers and two additional analysts. In total the company currently has 15 staff and plans to increase numbers to 25 this year, hiring new business managers and analysts. It has just doubled its floor space in St GeorgeÆs Building in Central Hong Kong and will be opening a pair of new offices, initially in Shanghai and after that in Beijing.
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