East European-focused hedge fund boutique launches Ukraine fund

Boutique hedge fund manager SG Alpha sees opportunities in cheap Ukrainian stocks and thinks the market will grow. It has launched an equity long/short fund to invest in Ukrainian companies.

Boutique East European hedge fund manager SG Alpha has launched its second fund to take advantage of cheap Ukrainian equities.

The SG Alpha Ukraine Fund opened with a little over $10 million, most of which is from a Swiss institutional investor. This takes total assets under management (AUM) in the two funds for the Moscow-based manager to $35 million.

The latest fund was launched because of a request from the Swiss investor. “We had a client request to invest money in Ukraine and since we have an expertise in it we thought we would do something which is accessible to other investors,” says Steffen Gruschka, chief investment officer and portfolio manager. Previously he developed the East European operations at Deutsche Bank’s fund management business DWS.

“There are only a handful of Ukrainian funds and those which are there haven’t done particularly well through the crisis and it doesn’t seem like anyone with such a product is very excited about it,” he adds.

The fund employs an equity long/short strategy investing in a portfolio of 10-15 Ukrainian companies listed on the Warsaw and London stock exchanges. These tend to be large-cap companies that are more liquid, explains Gruschka. “They have actively raised capital so their corporate governance tends to be better,” he notes.

Gruschka believes it is a good time to invest in Ukraine. Although the Ukrainian market performed badly through the financial crisis, one good result is that companies are relatively cheap compared with Russia, for example. He also thinks economic performance will pick up this year.

“It is a market which is a bit forgotten. But people will come in and fund flows will create multiple expansions. We also have the European championship [football] this year which will bring attention to the country and hopefully more positive investor interest.”

The fund is domiciled in Bermuda and has fees of 2% and 20%. The minimum investment is $/€1 million.

Gruschka established the company in 2009. His first solo venture, Explorer Capital, closed in 2008 when investors withdrew their capital. SG Alpha was established the next year with $10 million seed capital from Austria’s Erste Bank and an additional $5 million of friend and family money.

SG Alpha’s first offering, the SG Alpha Emerging Europe Fund, is up around 16% over the past two years with volatility of 7%, according to Gruschka.

Investors into the funds are mainly institutions based in the UK, Germany and Switzerland but Gruschka says he is trying to gain traction in the US.

The company is planning to launch a Ucits version of the Emerging Europe Fund in the second quarter. Gruschka hopes this additional fund offering will push AUM to $50 million by the end of the year.

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