HSBC Halbis Partners, the active asset-management arm of HSBC Group, is launching its India Alpha Fund, a long/short strategy that marks the first hedge fund for veteran India equities manager Sanjiv Duggal.

Duggal, who is based in Singapore, and his team manage $7 billion in Indian equities as of end 2006, making them one of the largest investors in the market. The teamÆs flagship HSBC GIF India Equity Fund, the largest of its kind in the world, has enjoyed a top quartile ranking since inception, with cumulative returns from February 1996 to March 2007 of 1,183% in US dollar terms, assuming gross returns were reinvested.

That compares to a return of 264% in the S&P/IFCI India Index over the same time period.

That makes for a compelling argument for active fund management. But the trick with active managers is that few are consistent. So will Duggal and his team, which includes Manish Srivastava and Viresh Mehta, be able to handle the risks that come with a long/short fund?

ôThey are the biggest foreign investors in the India market because they are consistently good,ö says Charles Robinson, director at Halbis in London. He says although the team has run long-only portfolios, it has done so in an absolute-return context, not against a traditional benchmark.

The firm has spent a year working out a structure to allow Duggal and his team to run both the long-only strategies as well as the Alpha Fund, ensuring there wonÆt be a way to front run the traditional portfolios and beefing up the compliance team.

The Alpha Fund can take net exposures from -20% short to 40% long, and will have an average net-long bias of 25-30%. This is well below many other India long/short equity products, which tend to be net long 40-60%.

Budgeted volatility is 10%, says Bill Maldonado, head of alternative investments at Halbis. ôThere will be two components within the portfolio. The first is best ideas for long and short positions based on the existing long-only strategy. The second component will be long/short pairs trades, where valuation anomalies are matched up within a sector.ö

Halbis reckons the fund will soft close around $300-350 million and Duggal says he will close the fund when it reaches $500 million. The portfolio managers are being paid a base salary and part of the performance fees rather than a percentage of AUM, to ensure they donÆt try to raise more assets than they can prudently invest.

Halbis is charging a 1.5% annual management fee and a 20% performance fee, subject to a high-water mark. There is neither a lock-up period nor exit fees. Goldman Sachs will serve as both prime broker and fund administrator.