Singapore start-up launches small cap fund

Binjai Hill, a Singapore-based hedge fund start up, is preparing to launch its equity long/short Asian small cap fund. The aptly named Asian Acorn Fund is due to launch in mid June and will invest in small- and mid-cap stocks (between $250 to $1 billion in size) in Asia ex-Japan.

"We're a directional long-biased fund," says Justin Kendrick, one of Binjai Hill's three principals. "Although we take a bottom up approach, we're not purists. We will take macro factors into consideration in our investment process and may conduct pairs trades, as well as short country indices and large cap stocks to protect downside risk. The objective is to make an absolute return."

The fund is targeting a return of 20%-25% per annum.

Kendrick expects the Acorn fund to launch with about $10-$15 million. He says the fund will hard close at $350 million to $400 million in order to maintain flexibility. "We might even close before that if liquidity conditions deteriorate," says Kendrick.

The team has already undertaken two global marketing trips, and has received a positive response from investors.

"We've brought Eurekahedge on board to assist us as a third-party marketer, and they've been introducing us to some early stage investors we weren't familiar with previously. We are the first start-up fund that Eurekahedge has provided this capital introduction service to," says Kendrick.

CSFB is the prime broker and HSBC the fund administrator to the new fund.

Kendrick explains the fund will seek to identify small cap stocks where a re-rating is imminent: "This is an attractive space as there are a lot of under-researched opportunities," he comments. "We're looking for companies where there is a strong corporate governance culture and where we can identify a hard catalyst that will prompt the company to perform in the next three to six months."

He emphasises that Binjai has a rigorous research and investment process: "We won't be investing in any stocks without visiting the companies. We expect to visit between 250-300 companies a year, with about 100 companies on our focus list. We'll have about 30 - 40 stocks in our portfolio at any one time."

Transparency is very important to Binjai Hill, and the group seek to stand out from the Asian crowd by having their investment process audited by a third party.

"All our investment decisions and process are well documented, and our investment process will be audited twice a year by Compliance Asia."

As a further commitment to transparency Kendrick says that investors will receive weekly and monthly NAV reports as well as monthly newsletters. "We also put the highest emphasis on corporate governance standards, and don't engage in any soft dollar arrangements," says Kendrick.

The Acorn fund currently has a Southeast Asian bias in its portfolio, but will look for opportunities all over the region.

"We find a lot of value in South East Asia. We think much of the upside in North Asia has already been factored in by the markets. People have caught on to the Hong Kong and China stories, as well as to the India story, but the South East Asian story has gained much less publicity," notes Kendrick.

Kendrick explains that Singapore is a good location from which to run this strategy.

"Several of the small cap conferences take place here, and some of the smaller Chinese companies list in Singapore." He also cites the Lion city's friendly regulatory environment as an important factor.

Binjai's multicultural team led by three principals draws on 35 years of combined investment experience. Steven Wong, who previously researched Asian small caps at CLSA, Paribas and ABN AMRO, will lead the team's research effort. Most recently, Wong was managing the Asian portion of GIC's multi-billion dollar property fund.

Portfolio manager Syed Adlan recently left Deutsche Asset Management after seven years, having managed its Asia ex-Japan equity alpha fund as well as its Asian smaller company fund.

Kendrick will take the lead on client servicing and marketing for the fund, while also being part of the investment committee. During his career he has successfully launched two financial start-ups, including Crosby Securities' corporate finance business in Asia. He has also held senior equity sales positions at HSBC and ABN AMRO in Asia.