Truston Asset Management, a $5.5 billion asset manager from South Korea, is set to launch a pan-Asia long/short equity fund out of its Singapore office.
Hwang Sung-taek, co-founder and CIO at Truston in Seoul, says this is the second hedge fund to be run by the firm. It also has a Korean equity long/short strategy called the Dynamic Korea Fund, which was established in 2009.
“We felt the right time had come to launch this,” says Hwang. “Not in terms of the market, but with regard to our own confidence that we are qualified to manage such a product, and that we have the risk-management skills required for a long/short fund.”
There is also a demand component. With investors worldwide grappling with low interest rates and aging demographics, they are keen to source absolute-return products, says Hwang.
The firm has hired Edward Choi to serve as portfolio manager to the new product, to be called the Falcon Asia Fund. Hwang has known Choi professionally for nearly 20 years. He comes from Elmwood Advisors, a Singapore-based asset manager that closed its funds in 2011, where he was an analyst for Korean equities.
This represents a new version of the expansion of Korean asset managers overseas. Unlike big domestic firms such as Mirae Asset Global Investments and Samsung Asset Management, both of which have expanded into Asia aggressively, only to streamline those operations, Truston is starting small.
The firm is growing rapidly. Its AUM grew by $1.5 billion over 2011, thanks to institutional flows from both Korean and overseas investors. Hwang says the firm aims to expand its AUM by $2 billion in 2012, with the hedge funds playing a small but important role as Truston’s growing overseas presence.
He says the firm is also preparing to launch a long-only strategy for Korean equities that will be marketed solely to overseas investors. This product will aim to deliver around 15% annualised over a three-year horizon by ignoring the benchmark and targeting undervalued stocks. “We are getting requests from funds of funds for an absolute-return, long-only strategy,” Hwang says.
The foundation for this growth is the firm’s performance track record. The Dynamic Korea Fund, for example, returned 13% in 2009, 10% in 2010, and lost -3.5% in 2011, which is better than average.
Hwang blames that on a disastrous September, when the fund lost -19% because the government slapped a three-month ban on short selling, which caught the Dynamic Fund in loss-making positions it couldn’t cover. “That was my worst month in 18 years,” Hwang says.
He says the firm is now ready to do a pan-Asia strategy, noting that Korean equities will play an important role. Korean listed companies are quite diversified, and include leading players in IT, shipbuilding, autos, construction, steel and other sectors. Truston’s analysts have therefore already been covering these industries on a regional basis and have experience doing company visits in other markets.
The new fund will cover companies in developed Asia-Pacific (Australia, Japan, Singapore and Hong Kong). It will pursue market-neutral strategies, with an average net long position of 10%, against a concentrated portfolio of around 40 stocks.
Although Korean regulators have made space to allow for onshore hedge funds, Hwang says Truston is launching this from Singapore because it expects its first set of clients to be foreign.
An independent individual outside of Korea has pledged to seed it, and it will launch this month with a modest $10 million. (Hwang declined to name the investor.)
Although Hwang expects Korean institutions eventually to become clients for the hedge fund as well, he says they are not yet prepared to deal with traditional hedge-fund fee structures. Truston will charge the usual 2% management/20% performance fees.
Deutsche Bank is prime broker, Citi is the fund administrator and PwC is the auditor.
In addition, Truston has appointed Brown Brothers Harriman as custodian to its upcoming long-only fund for foreign investors.