Hong Kong-based KGR Capital is planning to launch an Asian fund of hedge funds that will be listed in London in mid-November, the first product of its kind in that market, according to Mark White, a KGR director and former head of international institutional business at JPMorgan Fleming.
The listed company, KGR Absolute Return PCC, is aimed at UK taxpayers who tend to shun offshore funds because their gains get taxed as income, not capital, meaning they face a top-bracket whack of 40%. A capital gain, however, means Brits have allowances to offset some of these taxes, so KGR decided to list the product onshore.
It is a closed-end fund, but its Guernsey domicile should allow a more flexible corporate structure, in which the directors can either buy back shares or issue new ones, in order to prevent the NAV from suffering a steep discount. KGR's board may also redeem up to 25% of the issued shares every six months, starting in June 2007.
White says UK appetite for Asian strategies is big. This stems in part from the increasingly tepid returns from fund of hedge funds focused on America and Europe, and in part because Asia's less efficient economies appear to offer fund managers better opportunities to earn alpha. The fund of funds structure should be a hit, however, given UK investors' wariness of Asian market volatility. "The fund of funds should mean less downside for investors because of its diversification strategy," White says.
Dresdner Kleinwort Wasserstein is sponsoring the listing, with Kleinwort Benson (Channel Islands) Fund Services the manager, while KGR Capital will provide investment advice. KGR launched its first Asian fund of hedge funds in 2003.
The company will invest in a multi-manager, multi-strategy portfolio of Asian hedge funds. It will initially make allocations to about 30 funds, with most of them long/short equity strategies to start. Approximately 40% of the fund's exposure will be to Japanese strategies, with the rest allocated to the rest of the region, particularly to Greater China, Korea and India. As investment advisor, KGR Capital in Hong Kong is targeting annualized returns over 12% in sterling, with volatility below 10%.