A new Singapore-based hedge fund manager, Creo Capital, will shortly launch its Creo Asia + Long/Short Offshore Fund. The fund will be long-biased, focusing on large cap, liquid stocks in Asia including Japan.
Creo's principal and portfolio manager, Ed Strover, previously ran money for Japan-based Asian hedge fund Speedwell. Industry participants say Strover's track record classifies Creo as a second generation start-up and should encourage investors to put money into the fund in its early stages.
Strover says the fund will launch on June 15 with friends and family money of about $20 milion to 25 million. However, he is cautious when discussing capital raising,
"Performance is the key, and that's what we're concentrating on," he says. Strover expects the fund's strategy to have a capacity of about $750 million, a heavyweight by Singaporean standards.
Earlier this month, the Monetary Authority of Singapore's Ng Nam Sin announced that Singapore's existing 50 hedge funds accounted for $2.5 billion in assets.
"We're focusing on creating a professional set up, with a tight risk management and operational structure," says Strover. "I believe that we are operationally ready to run at full capacity from day one."
Joining Strover as the other key principals of the fund are Richard Lemerman and Sandeep Dhingra. Lemerman will be focused on the risk management and trading side of the business. Previously he was head of Asian equities for Lehman based in Tokyo.
Heading the research effort is Sandeep Dhingra, previously a tech analyst at JPMorgan. Dingra will lead a team of up to four analysts in Singapore.
Creo has also been discussing the outsourcing of some of its research process to Sri Lanka using a specialist company called Amba. "Sri Lanka has a strong pool of talent and Amba does a fantastic job of accessing and training analysts," he explains.
Strover himself will focus on portfolio management. Another team member, who has yet to be named, will join the team as COO.
Strover says Creo's structure has been heavily influenced by his time as a hedge fund broker New York. "I witnessed the growing professionalism of the US hedge fund industry and saw that running a hedge fund was not just about stock picking, it was about running a good business."
Strover explains that Creo's model is close to a mini-investment bank, with dedicated teams focused on trading, research, risk management, operations and business development. At launch, the Creo team will consist of eight people.
"Most Asian hedge funds are heavily focused on research and stock picking. But hedge fund investing is not simply about being long stocks that are creating value and short those that are destroying value. There are technical and practical aspects to investing," he argues. "Being a good analyst is not enough."
A key area where Creo seeks to distinguish itself from other long/short players is by the emphasis it puts on monitoring stock loan cycles. "Asia's stock loan market is structurally expanding, with demand creating supply and vice versa. But growth in the stock loan market is lumpy and has ebbs and swings. No one firm captures all of it in the same manner," he say.
Creo seeks to capture stock loan opportunities to the maximum extent possible by dealing with multiple counterparties. Creo has chosen Goldman as its prime broker and is also actively looking at putting money with other creditors.
Moreover Creo has an in-house team of two dedicated to monitoring trade flows and looking for opportunities to finance Creo's portfolio most efficiently. "Traditionally arbitrage funds in Asia have placed a greater emphasis on this area. We're relatively unique in the long/short space as we see efficient portfolio financing as a profit centre, not just a cost centre," he says.
Underlying all of this is a strong focus on risk management, both at the portfolio and the individual position level. Stover says, "Before we put a position on, we think carefully about whether we can manage our exposure. It's much easier to put risk on than take it off. A lot of opportunities can be recognised by talking to a company, but we need to consider how to capitalise on what we've identified for a good risk adjusted return."
Strover gives the example of an Indian software company that his team met and liked: "The country and liquidity risk involved would have required us to take a small position in the Indian software company. Instead we decided to take a bigger position in a Japanese systems integrator where the risk was easier to manage."
Strover notes that pan-Asian hedge funds are a fairly niche product as most funds tend to focus either on Japan, or the Asia ex-Japan region. "There are lots of opportunities to exploit valuation discrepancies within the region and between Asia and the rest of the world. Information still flows slowly and inaccurately around the region," he comments.
Discussing the timing of his decision to leave Speedwell and start-up a new business, Strover says, "I felt strong confidence in my own abilities and saw an opportunity to put together a first class team."
Commenting on Singapore as the choice for Creo's location, Strover says, "Singapore has a friendly and transparent regulatory environment. The MAS is an excellent institution."