The Dutch pension asset manager's Asia Pacific head of real estate says his team has just had one of its busiest years ever and that 2021 is looking similarly promising.
The fund invests in 25 private-equity companies listed in the Dow Jones Private Equity Total Return Index, with a tracking error of less than 1%. It differentiates from an exchange-traded fund, as the portfolio is actively managed by a team of portfolio managers in Paris using their so-called 'Dynamic Strategy'. It aims to achieve maximum return potentials with 150% leverage to portfolio, while having an eye to risks - cash holdings can go up to 50% during periods of high market volatility.
To be listed in the Dow Jones Private Equity Total Return Index, the minimum requirement is $2.2 billion in market capital and at least $500,000 of daily turnover in the stock of the private-equity company. The index is reviewed every six months, in March and September, and includes 25 constituents.
Its current top-10 holdings include 3i Group, American Capital Strategies, Wendel Investissement, Eurazeo, Allied Capital, Ratos AB Series B, Intermediate Capital, SVG, Apollo Investments and Jafco, all listed companies in the world's stock exchanges.
Since its conception in December 2003, in the three and a half-year period to June 2007, the private equity total return index has provided an aggregate return of 107.70%, beating Hang Seng Index by 34.57% and the MSCI World by 53.08%. (The HIS and MSCI World returns in this period were 73.13% and 54.62% respectively.)
The private-equity industry has outperformed the global equity market but it still maintains a low correlation to its volatility. By comparison, the fund provides retail investors an opportunity to enhance returns while diversifying risks, claims Lyxor. The 25 companies that the fund invests in are originated from America, Britain, France, Sweden, Australia, New Zealand, South Korea and Japan.
Andrew Au, director and head of retail distribution at SG Securities in Hong Kong, says the number of listed opportunities in this sector is increasing. By going public, these companies can diversify their investor base and broaden future access to capital. In turn, this trend brings private equity's innovative investment strategies and previously inaccessible opportunities to the retail market.
Unlike private equity firms that remain unlisted, these public private equity firms might not take on overly risky bets, as the listing's fiduciary duties require them to disclose financial positions, and also they are subject to law in maintaining liquidity and leveraging. The transparency improves reduces investment risks, when marketed to retail investors. So investors shouldn't expect the kind of high-octane returns that the industry is known for.
Despite the current market turmoil stemming from the subprime crisis - which has drained liquidity for private equity, creating questions about the ability of many firms to execute deals at favourable prices - the fund has been well received in Hong Kong. He believes this is due to a long period of working with distributors to educate them on the fund. But he acknowledges this is a concept that some customers struggle to grasp.
It follows on a series of thematic launches SG has laid out earlier this year. In April this year, it launched Asia's first 'Dynamic Water Fund' and June saw its first 'Dynamic Alternative Energy Fund'. Both funds are structured similar to the new private equity fund. They employ the 'Dynamic Strategy' - active management with magnified upside potentials using leverage and investment portfolios constructed from indices from Dow Jones - the World Alternative Energy Total Return Index and the World Water Total Return Index.
"They are not gimmicks, but innovations," says Au. "We try to make more attractive opportunities available to retail customers. In Hong Kong, we come up with the ideas and throw them to our Paris engineers who simulate the portfolios and realize them into actual investments."
Possible themes for the rest of the year include human resources and ways to profit from Asia's aging populations, he adds.
Offering of the private equity fund is still underway. It will close on September 5, 2007. Minimum investment is at $3,000. The management fee is marked at 1.75% per annum and dealing clears weekly on Fridays.
Sunsuper and QSuper appoints CIO for combined entity; State Street appoints heads of HK and Taiwan; Nothern Trust rebuilds Apac team; Manulife IM names emerging markets fixed income CIO; RBC Wealth Management hires four into HK; Lombard Odier hires two senior equity managers; Allianz Global Investors appoints Asia hand as equity CIO; and more.
Investors from China and the US are expected to continue buying assets in each other’s markets despite the blacklist of Chinese firms with military and surveillance ties.
Stronger government actions are needed to meet the Paris Agreement goal of limiting global temperature rise to 1.5 degrees, investors such as Hesta and CDPQ signed in a statement.
AsianInvestor explains why we chose the winners of the second half of our 2021 fund manager winners, by major local markets.