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Samena Capital Planning New Fund For Asia Hedge Fund Startups

9 April 2010 (Bloomberg) – Samena Capital, backed by fund managers and entrepreneurs in Asia, Middle East and North Africa, plans to raise a new pool of money for strategic investments in Asia-focused hedge funds later this year.

The Hong Kong and London-based company’s hedge fund seeding unit plans to start the Angel Fund II in the second half, Managing Director Julius Wang said in an interview yesterday. It will seek more money than its existing $75 million Angel Fund, whose capital is expected to be used up over the next three months with two new investments, he said.

Samena is planning the new pool as the downsizing of Asian operations of global fund houses and banks’ proprietary trading desks led managers to start their own hedge funds. The demand for seed capital has risen as institutional investors become more reluctant to cough up money for small startups.

“With the shedding of people from the global hedge funds and the proprietary trading desks, there’re more qualified people to run real hedge fund strategies,” said Wang. “Real hedge fund strategies mean people not only hedge but are able to generate returns from the short-side. That’s a tall order in Asia.”

Seeders like the Angel Fund provide startup capital to new hedge funds in exchange for a share of revenue, and in some cases, take an equity stake in the fund manager’s business.

The Angel Fund may make its first investment in an Asian equity long-short fund after shunning them because they tended to move in tandem with the general stock market direction, Wang said. Long-short funds bet on both rising and falling stock prices.

Long-Short Funds

Samena is in talks for possible investments with two equity long-short funds, Wang said, without identifying them. It’s considering the strategy because investor demand for long-short equity funds in Asia has returned, he added.

The fund plans to make its next investment over the next 30 days, with a second over the next three months, Wang said.

The Angel Fund also likes macro funds that profit from macroeconomic trends by trading a broad range of securities ranging from currencies to equities, and event-driven funds that trade securities affected by mergers, bankruptcies and reorganizations, he said.

Samena, set up in 2008, manages about $400 million of assets for investments in Middle East, the India subcontinent, Asia and North Africa. Its Chairman, Atul Punj, is founder of Punj Lloyd Ltd., India’s second- largest listed construction and engineering company, according to Samena Capital’s Web site.

Vision Asia

Samena last year acquired Hong Kong-based Vision Asia Pacific Ltd., manager of the Angel Fund, and has renamed it Samena Asia Managers. The fund makes two to four-year investments in new hedge funds averaging $20 million to $25 million each, according to Wang.

The Angel Fund returned 18 percent from its inception in June 2007 through the end of last year, including a 5 percent gain in 2008 when the global hedge fund industry suffered its worst annual loss on record. It returned 3 percent this year, Wang said.

Half of the global investors in a Deutsche Bank AG survey released in March required hedge funds to manage at least $100 million before considering an investment. Seeding has become a popular way to reach the critical size, the report said.

“The entry point for investors in Asian funds is and always has been lower,” said Harvey Twomey, Hong Kong-based head of Deutsche Bank’s prime finance institutional client group in the Asia-Pacific region. “But there’s no question that the environment for new managers launching remains challenging, with seed capital still scarce and expensive when sourced.”

Phalanx Capital

Nine percent of hedge fund seeders globally are based in Asia, according to the Deutsche Bank survey.

The Angel Fund has backed six hedge funds and retained investments in three of them, including Phalanx Capital Management LLC, a Chicago-based manager that trades convertible bonds, warrants, options on indexes and individual stocks.

In October, Samena announced it was investing in a new Asian bond fund jointly with Argyle Street Management, a Hong Kong-based debt fund specialist.

Samena’s seeding unit may consider taking equity stakes in future investments in which they are more deeply involved in helping improve their businesses, Wang said. In the past, with the exception of Argyle Street, it often resorted to revenue sharing without an equity interest, he added.

The new fund will have a similar structure to the Angel Fund, which is a closed-end fund with a five-year life that could be extended to seven years. The structure allowed the Angel Fund to avoid having to back out of investments because of investor withdrawals during the financial crisis, Wang said.

Samena aims to raise most of the capital for the new seeding fund from its own shareholders and investors. Samena, the parent company, also runs a Japan hedge fund and a special situations fund.