Hedge firms launch risk-controlled emerging markets products

Allocators’ thirst for emerging markets exposure with greater risk control is being facilitated by new products from two alternatives industry emerging markets managers, in the UK and US.

The launches come as emerging markets hedge funds continue to exhibit a higher volatility this year than their overall industry sector.

EM hedge funds have swung between a gain of 4.84% in January and a 5.42% loss in May, producing a 0.79% gain overall this year, according to Hedge Fund Research.

Over the same period, equity hedge funds in total have not fallen as far (4.07% their worst drawdown, in May), nor run up as hard (3.88% their biggest gain, in January).

However, they have both avoided the sharpest monthly drawdowns in emerging markets (11.4% in May, according to S&P Indices) and developed markets (9.07% also in May).

Emerging markets hedge fund investors are therefore catering to a thirst for flexible EM products.

Connecticut’s ABS Investment Management has launched its first co-mingled fund of EM long/short funds, to add to its $3.75bn assets.

Founding principal Alain De Coster said the fund would have 50% to 75% net exposure to emerging market equities.

ABS has invested in emerging markets since 1994 and one in every five dollars ABS runs is in those markets

“We believe this product will be viewed as a lower volatility alternative to long only emerging market investments,” he said.

Separately, London-based $1.3bn multi-manager Cube Capital has opened its $100m Cube Global Opportunities fund, launched about three years ago, to outside investors.

Cube Global Opportunities is an event driven fund investing long and short in equity, debt and derivative securities globally, but mainly in Asia and Europe.

“We think this is a great time to open this fund to outside investors,” said Francois Buclez (pictured), CEO of Cube Capital. “We expect global economic instability to continue for the foreseeable future, and continue to be a fertile source of dislocation, so there will be many opportunities for this contrarian fund and its investors.”

CGO’s event driven themes seek to capture opportunities on the long side at moments a sector’s or industry’s traditional investor base rushes to exit, “almost regardless of price”.

On the short side, it looks for opportunities in sectors facing “disruptive changes where investors have not factored in enough downside as a result of those changes”.

The fund is run by Nick Linnane, who targets 15% returns per year.


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