Alex
Frew McMillan
July 15, 2005
San Francisco-based Gerken Capital Associates plans to launch the GCA Greater China Fund in
August. The fund, which will have a long bias, is focusing on investments in Hong Kong, China
and Taiwan but will also take positions in China-related stocks listed in the US, South Korea,
Japan and Singapore.
The fund will invest in stocks, derivatives, fixed income products, convertible bonds and
currencies, taking a bottom-up approach to research.
The fund is looking for growth-oriented stocks on the long side, while shorting stocks that are
overvalued due to irrational exuberance or misunderstanding of the company. The initial
investment ratio is 70% to China and Hong Kong and 30%to Taiwan.
The fund will hold 40 to 50 positions, with no one position accounting for more than 10% of
the fund.
The fund is targeting annual returns of 15% with volatility of less than 15%. It is striving for a
correlation of 0.4 or less with greater China stock indices.
The minimum investment is $250,000. There is a 2% annual management fee and 20%
performance fee. For investments of $25 million or more, the fees are 1.5% and 15%
respectively. GCA is charging a 3% redemption fee in the first year and 2% in the second
year, with none thereafter.
The master fund is domiciled in the British Virgin Islands. GCA is considering listing the fund in
Dublin.
Hong Kong-based PCI Investment Management and Taiwan-based Polaris Investment
Management are both co-advisors to the fund, providing investment ideas.
PCI Investment Management is the asset-management subsidiary of life insurer Pacific
Century Insurance Holdings. It runs two hedge funds, the Hong Kong Equity Fund and the
Eastern Explorer Fund, which have a combined $53 million under management. PCIIM will
cover China ex-Taiwan for the fund.
Polaris Investment Management is owned by the Polaris Group, a Taiwanese financial services
conglomerate. It will focus on covering Taiwan for the fund.
Morgan Stanley is the prime broker with Walker Smith as the lawyers. Deloitte & Touche are
the auditors, with Hedge Fund Services as the administrator. VP Bank is the depository bank.
Gerken Capital has $1.5 billion in assets under management and specializes in alternative
investments in emerging markets.
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