JF Funds has announced that its hedge fund, the JF Asia Absolute Return Fund, will close to new subscriptions at the end of June. The fund is nearing what the managers believe to be its capacity in the current markets, $100 million. At the end of May, the fund stood at $87 million and is currently about $90 million.
This is actually well down from the size of the fund when it was authorised to take in retail investment in December last year when it stood at $160 million. This fall in assets has not been due to performance, which has been good, but rather redemptions when former fund manager, Roger Ellis, departed and was replaced by Miles Geldard in February.
JF decline to say what kind of retail inflows the fund has seen since it was authorized to market to smaller investors.
Sources say $100 million seems a rather small size to close a fund when there are hedge funds running many hundreds of millions quite successfully. Geldard maintains the view that a big fund is not wanted.
He says a smaller, more nimble fund is the ideal. He points out that an independent hedge fund manager running a single fund may well handle larger amounts, but adds that the manager depends on the single fund for fees and so needs a higher asset level. This is not the case with JF Funds.
Douglas Eu, chief executive of JF Funds, says, "The current size of the fund is nearly optimal given the current liquidity conditions in the market. The fund will close until further notice as there is no way to predict when the liquidity situation and the general economic environment will improve such that we can re-open it."
The fund was authorised in Hong Kong for retail distribution in December last year, one of the first hedge funds to be authorised by the SFC, the other being JF's greater China fund. The Asia Absolute Fund was launched in September, 1998 and since then the NAV of class A shares has risen 886.1%.
Hong Kong's retail investors missed out on the fund's most impressive year when it returned 455%, in 1999. It rose 30.1% in 2001, 31.9% in 2002 and up to the end of May it was up 5.4%. Geldard says that so far this month the fund is up almost 2%.
JF's other authorised fund, the JF Greater China Absolute Return Fund, launched in December last year, stood at just $21.8 million at the end of May.
Commenting on future plans, Eu declined to give any details, "We would very much like to expand our range of products. Hong Kong investors are gradually beginning to understand hedge funds."