Qi Capital, a newly established Hong Kong-based hedge fund, has recently launched its Asian Macro Fund with $17 million under management.
CIO and co-founder Terence Khoo says the initial assets have come mostly from the fund partners, friends and close associates. He expects the fund to gain another $10 million in assets shortly from a large fund of hedge funds.
Khoo is no stranger to the Asian hedge fund world. From 2000-2002 he worked with Michael Sofaer, founder of Sofaer Capital, one of Asia's first hedge funds, managing the SCI Asia ex-Japan fund. He then moved on to work with Kerry Asset Management, the family office of Malaysian Chinese tycoon Robert Kuok.
The Kerry Group is best known for its food and commodities trading business, as well as the ownership of the Shangri-la hotel chain and Hong Kong newspaper South China Morning Post. While working with the Kuoks from 2002-2005, Khoo assisted with the management of over $500 million in listed as well as private equity assets.
Qi Capital sees Khoo return to the hedge fund industry, partnering with old friend Miron Mushkat. Mushkat, who takes on the role of chairman and chief economist for the fund, serves as a visiting professor at Hong Kong University, and is frequent advisor to governments in Asia. Most recently, he was involved in overseeing the Delta Asia Financial group.
The two PhD graduates worked together in Asia in the late 1990s first at Lehman Brothers, where Khoo was a proprietary trader and Mushkat was chief Asian economist, and later at Indocam (now Calyon) Asset Management, where Khoo managed several portfolios including the Asian Renaissance Fund, and Mushkat held the position of global head of economics and investment strategy.
Khoo describes Qi's pan-Asian fund as a macro strategy that invests in equities, foreign currencies, fixed income securities and commodities. However, he notes that the fund will make individual stock picks and that equity long/short will make up the largest component of the fund in most circumstances.
"Top-down views will drive the portfolio, but when you have a top-down view you have to find something to express it, and an index is a very blunt tool," explains Khoo.
Qi's investment process is both top-down and bottom-up. "We use macro factors to identify themes, but our bottom-up research is also an important part of that. Through company visits and financial modeling we are able to build and affirm our macro pictures, as well as generate investment ideas," says Khoo.
Building a macro picture to evaluate and take advantage of the state of the business cycle is an important part of the fund's strategy, a method rooted in Khoo's PhD dissertation on business cycle asset pricing.
When it comes down to security selection, factors such as valuation, the presence of a catalyst, industrial structural changes and being early in the trade will come into play.
Khoo explains that having the flexibility to invest in multiple asset classes is important for generating returns and managing risk.
"Investing will also use rotation strategies between equities and bonds, to take advantage of business cycle dynamics," he says. "Ideas will also be cross-fertilized across asset classes. For example we felt that the prospects of the euro were not that good in the medium term, so we went long Hyundai Motors and short Kia motors, because Kia is much more dependent on the euro for its business. We felt that the companies' stock prices had not expressed this yet."
Khoo explains that despite the equity-biased nature of the fund, there may be times where the fund will not want exposure to equities at all: "In 1998 whatever stock you held would go down. In such environments, liquidity is tight, making it hard to borrow names you want to short."
The fund aims for a long-run annualized return of 20%. Khoo will be marketing the fund to family offices and European-based fund of hedge funds. He expects his portfolio to be able to manage at least $500 million in assets.
Qi has selected Morgan Stanley as its prime broker, and HSBC as fund administrator.