Gottex seeks a new approach in Asia

‘Hedge fund fees only for hedge fund returns’ is one maxim of Penjing Asset Management, M&A target of Swiss-based Gottex FM.

When Gottex Fund Management’s Max Gottschalk moved to Hong Kong looking to expand hedge fund investing in Asia, he sought attributes in M&A targets long-known in Europe but arguably less prevalent in Asia. Institutional-strength infrastructure and repeatable due diligence in manager/fund selection processes were high on his list.

Gottschalk found both of these in $430m fund of funds manager Penjing Asset Management, and announced a cash-and-shares deal in May. The parties hope for regulatory approval soon. Gottschalk, Gottex’s head of Asia and senior managing director, found in Penjing a company already providing clients with strategies still being developed by European fund buyers.

One is paying hedge fund fees only for hedge fund-type performance – thus fulfilling one purpose in the eyes of end-clients. This is arguably keenly relevant in emerging Asian markets, whose managers have a reputation for being heavily, positively exposed to markets.

Ronnie Wu (pictured), Penjing founder and CIO, explains how his firm has done so, decisively, for the past year. There is no reason to think he will change his approach as portfolio manager and CIO for Gottex’s Asian product line.

Penjing segmented its equity managers by ‘category’. On one side are long/short managers adjusting net exposures, and using short books actively. Absolute return managers, on the other side, are “much more beta-driven, though over the cycle they can generate alpha on top of that”.

Fees when deserved

“We have to separate that and we monitor and make sure we pay accordingly. For managers with high beta we say, ‘We can invest with you, but we will not be paying hedge fund fees’. In most cases they would discount fees, and if they do not, we would move to another provider willing to take a lower fee,” Wu says.

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