Hong Kong-based Quam Asset Management launched the Quam SilkRoad Mongolia Fund on April 4. The portfolio manager is Quam’s chief executive Richard Harris who is currently in Switzerland fundraising for the new fund. He says it has launched with $20 million.
The fund will invest in securities exposed to Mongolia, a country in a state of rapid economic growth galvanised by prospects for exploiting mineral resources that are on the threshold of realisation. The Mongolian frontier mentality has resulted in international mining companies pumping cash into the country.
For example, the $2.6 billion being invested in Oyu Tolgoi mine is expected to result in it ranking among the world’s most profitable copper mines.
These kinds of investments also trickle down to local people – the Oyu Tolgoi mine will employ 18,000. Further, big-ticket purchases, such as the Caterpillar vehicles, get bought through the local Mongolian franchise holder. So there will be money made privately, by whoever is lucky enough to hold those franchises, but there’s also going to be money in the broader economy.
Those cashflows have propelled the domestic equity markets skyward in the last two years. It is already up 40% this year, although the Ulan Bataar markets are tiny by international standards.
So the fund will also look for Mongolian companies listed overseas, where current valuations are less stratospheric. The fund will have a liquid portfolio of between 10 to 20 stocks and there will be no recourse to external leverage.
According to the International Monetary Fund, Mongolia’s economy grew by 9.5% in 2010 and is projected to grow 8.3% this year. With the local currency strengthening more than most last year against the dollar, that meant US dollar equivalent annual growth of 30%. Approximately 85% of Mongolia’s resources are consumed by its voracious southern neighbour, China.
The management fee for the fund is 2% and the performance fee is 20%. Redemption is monthly on 30 days’ notice, but there is a fee for redemption prior to two years.
The fund’s custodian is Citibank, the Hong Kong lawyers are Deacons and the auditor is Ernst & Young.