Singapore-based Stork Capital Management will launch its Asian long/short fund on April 1. The fund will begin trading with $3 million under management, made up of the fund manager's private capital as well as investments from Australian financial institutions.
Fund managers Jay Moghe and Daniel Ammavuta say the new fund will be driven by their proprietary quantitative macro model. Stork has been using this framework for over two years to trade its existing US/Australian fund that currently stands at about $15 million. "Our model has produced successful results for our US /Australia fund, producing a 30% cumulative return since its October 2001 inception," says Ammavuta.
Moghe explains that the investment model is based on the premise that equity markets are inherently inefficient in the short-term due to the variety of factors that influence them. He believes that this characteristic can be exploited through a disciplined quantitative investment approach that is dynamic enough to take the various macro factors influencing the market into account. "Asia should provide even more opportunities for us given the severe inefficiencies and disequilibrium that the regional markets experience," says Moghe.
Stork's Asian fund will limit its investments to the developed markets of Hong Kong, Japan, Korea and Singapore. "We need to invest in markets where there is ample liquidity in the top stocks and where we can go short with relative ease," says Ammavuta.
In a region cluttered with Asia long/short strategies, the fund managers feel that Stork will standout for its quant-driven, top-down approach. "The majority of Asian long/short managers are value driven and take a bottom-up fundamental approach. As a result they have a natural long bias in their portfolio. We take a directional view and will hold a net short portfolio if this is what the market environment warrants," says Moghe.
For example, Stork was recently net short the US and Australian market, as their analysis showed that fear of terrorism was an important theme driving markets. This resulted in the fund holding short positions in stocks such as airlines, and long positions in stable consumer stocks.
Moghe says that the current theme influencing its Asian portfolio is the effect of a movement in the Fed's interest rate. "Our model looks at each market individually, and is flexible enough to capture variations in impact. For example, Singapore will be more affected by a US downturn due to its dependence on electronics exports."
Stork's investment model was jointly developed internally in early 2001. The managers spent 6-9 months testing the model with half a million of their personal capital before launching their US/Australia fund in October 2001.
How do the fund managers react if their model recommends investments that go against their gut feelings?
"This happens very rarely," says Ammavuta. "Our model is not a black box. There is a lot of manager input. It is a dynamic and iterative process."
Moghe adds, "There have been occasions where the model has surprised us by the intensity of its recommendations. But that is exactly why it is so useful. It applies a rigour to our investment decisions and prompts us to think through them even more carefully." Both fund managers have a long history of trading in the Asian market. Moghe was previously COO at APS Asset Management in Singapore. He also spent time as a director at Bloomberg Tradebook in Hong Kong and a portfolio manager at Lloyds Bank in London.
Ammavuta has a prop trading and equity sales background with HSBC James Capel in Singapore. He also traded for TA securities in Malaysia. Most recently, he worked on the Australian equity market with Shaw Stockbroking and JP Morgan.
Moghe and Ammavuta are both intimately involved with the investment decisions of both their Asian and their US/Australian funds. "We're still a small set up and we think it is important for us to closely cooperate on all decisions. That way performance will not be effected if one of us is away," says Moghe.
In addition to the two fund managers, Stork currently employs an office administrator who monitors operational and settlement activities. They are also looking to add an economic strategist to their team.
Ammavuta points out that Stork has seen a significant amount of interest from Australian based institutions. "Not many Asian hedge funds have looked to the institutional market in Australia to raise money. We are seeing considerable interest in our Asian hedge strategies from these investors," he says.