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Treasury & Capital Markets / On The Move
Ex-StanChart bankers start new hedge fund
Despite the challenging market for hedge fund start-ups, three ex-Standard Chartered Bank (SCB) executives have launched a fund focussed on the region’s fixed income market, including the thriving local currency bond markets. The fund, Sentosa Asian Credit Fund, has an initial USD40 million of assets under management. But the fund managers expect the size to grow. “We have built a scalable platform that will allow us to manage a size that is considerably larger,” explains Brad Levitt, CEO of Sentosa Capital.
Daniel Yu 1 Jun 2011
They're back: Sentosa Capital's Brad Levitt, Anton Martin and Charlie Wang

 

Despite the challenging market for hedge fund start-ups, three ex-Standard Chartered Bank (SCB) executives have launched a fund focussed on the region’s fixed income market, including the thriving local currency bond markets. The fund, Sentosa Asian Credit Fund, has an initial USD40 million of assets under management. But the fund managers expect the size to grow. “We have built a scalable platform that will allow us to manage a size that is considerably larger,” explains Brad Levitt, CEO of Sentosa Capital. Levitt, together with Charlie Wang, the former global head of credit trading, and Anton Martin, the former global head of investor sales, are the ex-SCB principals behind Sentosa Capital. Levitt, the former global head of capital markets, led the team at the bank that in 1998 began to build a business originating and trading local currency bonds. In 2004, SCB was awarded The Asset’s Asian Currency Bond House, a recognition it has maintained for the past seven years.

 
The Sentosa fund has attracted an anchor investor in Singapore. Martin, the fund’s head of investor relations and business development, expects that given the fund’s investment approach, it should be able to draw interest as well from institutions outside the region looking to diversify into Asia and also from private banking accounts keen on consistent returns. “Our expectations are validated by the interest we had at the pre-launch,” he adds. “We are also working with our prime broker, Deutsche Bank.” The minimum investment in the fund is USD250,000.
 
Wang, the chief investment officer, says that liquidity will be a core component of the portfolio. Leverage will also be a part of the strategy although the fund is not intending to adopt a highly leveraged strategy. “We will focus on high-end or high-quality credits including sovereign and corporate paper both in hard currency and local currency,” he notes. “We will also be looking at the opportunity set between the offshore and onshore markets from a top-down perspective.”
 
Levitt explains this strategy applies even in markets that may be below investment grade. “From our experience, even in distressed situations such as the Asian financial crisis in 1997/98 and in 2008, liquidity is apparent not just in the higher grade US dollar credits but also in the high-quality onshore markets. This is in contrast to the [lack of] liquidity in the high-yield US dollar or distressed paper segment. Most people will just focus on the US dollars; we will be looking also at the local currency side both on a hedged and unhedged basis.”
 
As a pioneer in Asia’s local currency bond markets, Levitt says the progress made in many of these markets mean that they are no longer easy to ignore. The local currency credit markets have been growing at a compounded annual growth rate of over 25% but are still relatively small compared to the region's economic footprint and high growth rate. Asia's credit market (ex-Japan and Australia) represents less than 8% of global bond markets and is currently comprised of over USD350 billion in G3 denominated issuance and over USD5 trillion in local bonds outstanding. “We see enormous opportunities in these markets,” he points out. “The key differentiator for our fund – and this will grow as markets open up – is our local market knowledge. We understand the regulators and we understand how decisions are made by issuers – these are part of our DNA. Not a lot of people understand the local markets other than on a country by country basis; we are among the few who have built a viable business around these markets.”
 
Sentosa Capital is launching at a time when other, more established names have similarly unveiled plans to enter the Asian credit alternative investment space. BlackRock, one of the world’s largest asset managers, indicated in February 2011 its intention to launch an Asian credit hedge fund; Manulife Asia has launched an onshore credit fund in Taiwan with plans to expand it to include other local currency markets; Leon Black’s Apollo Management’s Asia office, under Tan Chin Hwee, is also looking at a new credit fund in addition to the existing Asia Opportunity Fund. Among recent launches, Guan Ong’s Blue Rice Investment Management now manages a fund that invests in US dollar Asian credits. Ong, the former chief investment officer of Korea Investment Corp, launched the BRIM Asia Credit Fund in December 2009.
 
Levitt, however, is undaunted by the recent surge in interest in Asian credits. “Any start-up is going to have challenges and we’ve seen others doing the same thing as us,” he says. “It is [also] a challenging fund-raising environment whichever way you look at it. [But] strong businesses are usually the offsprings of challenging times. We think it is a great time to launch.”
 

 

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