Hans Schlaikier, Hedgeweek

Mixed results for hedge fund beta indices in April… US hedge funds look to Asia and airlines…

The Market Vectors Hedge Fund Beta Indices experienced mixed results in April with two of the six indices seeing positive returns, one remaining flat and the other three ending the month in negative territory.

The MV Western Europe L/S Equity Hedge Fund Beta Index was the top performer with a return of 1.20 per cent while the MV Global L/S Equity Hedge Fund Beta Index returned 0.35 per cent and the MV Asia (Developed) L/S Equity Hedge Fund Beta Index remained static.
 
The MV North America L/S Equity Hedge Fund Beta Index, MV Global Event L/S Equity Hedge Fund Beta Index and the MV Emerging Markets L/S Equity Hedge Fund Beta Index were all negative with returns of -1.08 per cent, -0.78 per cent and -0.26 per cent respectively.
 
Each index is constructed using transparent, liquid ETFs to produce hedge fund-style returns without hedge fund pricing, opaqueness and redemption restrictions.
 
Carl Vine, a former Hong Kong-based SAC manager who relocated to the U.K. last year, is joining Dymon Asia Capital (Singapore) Pte. to start a global equity long-short hedge fund based in Oxford, the U.K., Dymon President Jay Luo said in an interview in February. Vine left SAC after it shut its London office last year.
 
New York’s hottest young hedge funds are turning their attention towards Asian equities and airlines for the next big trade.
 
At Sohn Next Wave, held in New York’s Lincoln Centre ahead of the prestigious Sohn Investment conference, Chinese travel agent Ctrip, Indian telco Bharti Infratel, Japanese property company Goldstar and US airline JetBlue were the best trades touted.
 
Jason Karp, of USD1.3 billion Tourbillon Capital Partners, could hardly contain his enthusiasm for the enormous potential of Nasdaq-listed Chinese travel company Ctrip.
As China’s middle-class grows, so does its propensity to travel. While China as a nation spends more on travel than other countries, on a per capita basis, it spends the least.
 
Ethan Devine, of Indus Capital, favoured Japanese property company Goldstar, a stock that could benefit greatly from Abenomics.
 
He cited the underappreciated potential of Japanese real estate, which he said was cheap by global standards – considering rental yields of 6 per cent can be achieved, while a 10-year mortgage was less than a per cent.
 
Kora Management’s Nitin Saigal went to his home country of India to explore companies to bet against. With high competition, excess capacity and corrupt regulators, Indian telco stocks appeared to be attractive shorts. But instead, Saigal says, he came to appreciate the enormous profit potential of Bharti Infratel, which operates mobile phone towers across the vast country.
 
As Indians rapidly embrace smartphones and mobile data, demand for the infrastructure will increase, allowing the company to generate cash and grow at a rate of 15 per cent. Saigal says at its implied valuation of seven times earnings before cash, it was extremely cheap – and expected the stock to double in two years.
 
He added that the old perception that emerging market stocks move in unison was wearing off.

Investing in airlines has often been considered to be a great way to lose money but Snellings says two structural changes have occurred. One is that consolidation has seen the top four airlines controlling more 80 per cent of the US market, resulting in more rational and predictable pricing behaviour.
 
Also the lowest-cost airline, Southwest, has seen its cost advantage eroded, forcing it to change its strategy from market-share grabbing to better pricing.
 
The South China Morning Post reports that Securities and Futures Commission wants the Market Misconduct Tribunal to impose a "cold shoulder" order on US hedge fund Tiger Asia Management and its two senior executives that bans them from trading in the local market for five years, the tribunal heard yesterday.
 
The SFC sought the order against fund founder Bill Hwang Sung-kook and head of trading Raymond Park for their insider dealing committed in two Hong Kong-listed mainland banks in 2008 and 2009.
 
The pair's lawyer argued that the penalty was too harsh since the fund and its executives were ordered in December last year by the Court of First Instance to pay HKUSD45.27 million to the 1,800 investors who suffered from their insider dealing.
 
Tiger Asia also reached a USD60 million settlement deal with the US Securities and Exchange Commission in December 2012 for the same insider trading.
 
Senior counsel Peter Duncan, representing the hedge fund, Hwang and Park, yesterday said they should not be punished twice in Hong Kong.
 
"They have paid the money, they have learnt from the mistakes," Duncan said during the tribunal hearing chaired by Mr Justice Michael Hartmann.
 
Senior counsel Simon Westbrook, for the SFC, said a five-year cold shoulder order, which would be the maximum granted by the tribunal, would send a clear message to the public about the seriousness of the case.
 
Duncan argued that the parties would be unlikely to do the same thing again. Tiger Asia and the two executives had already admitted to insider dealing and manipulation to the tribunal. As such, yesterday's hearing was to determine the penalties.
 
TheSFC started its legal action in 2009 against Tiger Asia, Hwang, Park and trader William Tomita for insider trading and market manipulation before separate share-placement announcements by Bank of China and of China Construction Bank in 2008 and 2009. In both cases, the investment bankers arranging the placement had invited Tiger Asia to buy the shares and gave it advance knowledge before public announcements.

Hwang and Park had admitted using the information to short-sell the shares and bought them back at lower prices after the deals were made public. The December payment orders excluded Tomita because he was only a junior staff member.
 
Korea Post, the national postal service of South Korea, is looking for global single hedge fund managers for two strategies of up to USD40m each as part of its global diversification plan.
 
The size for each mandate will be USD20m to USD40m, which can be shared or managed by a single firm. The first strategy is equity long-short that can be long-biased, variable or equity market neutral but must have had average notional net exposure below 40 per cent for the past six years. The second is event-driven with average gross exposure to each asset class of more than 20 per cent for the past six years. Managers must have more than US2bn in AUM to apply but those currently invested by Korea Post's insurance bureau are not eligible to apply.

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