SYDNEY, Australia (HedgeWorld.com)–Wallace Absolute Return, a long/short hedge fund started by three stockbrokers from UBS Warburg, is to be listed on the Australian Stock Exchange this month.
Richard Wallace, until recently a director of equity trading at UBS Warburg Australia, leads the firm. The other two principals are Michael Birch, previously a director of equity research at UBS Warburg, and Adam Brandwood, a member of the bank’s exchange-traded derivatives department.
The team formed Wallace Funds Management in March 2002,and, at the end of October, issued a prospectus to raise up to A$100 million (US$56 million) with an initial public offering of 100 million shares at A$1 each. The ASX has allowed the prospectus to remain open after the stock is listed, with the entry price depending on weekly NAV reports.
Potential investors include large superannuation (retirement) funds with an interest in alternatives and individuals who manage their own pensions as well as the high-net-worth population and “people who want to remain in the stock market but are gun shy of all the volatility,” said Mr. Brandwood.
He said the market neutral strategy is expected to provide consistent returns not correlated with equity market direction or volatility. The relative value approach will primarily focus on ASX-listed businesses in a range of industries. Investment guidelines suggest that positions in securities listed in the S&P/ASX 200 Index account for at least 80% of the portfolio.
Unlisted securities should be no more than 10% of the portfolio and non-Australian securities no more than 20%. The manager may invest in bonds and derivatives.
The company is targeting after-tax returns of cash plus 4% to 9% per annum and intends to have a 50% dividend payout ratio, according to Mr. Brandwood. This allows investors to benefit from capital appreciation fueled by the remaining 50% of earnings. Share buybacks may be used to keep the stock price in line with the NAV.
Leverage will be minimal. Leveraged Equities Ltd. has agreed to provide a financing facility to approved customers who allow them to borrow up to 50% against Wallace Absolute Return.
The fund requires a minimum investment of A$2,000 (US $1,120). The management fee is 1.2%, and the performance fee is 20% over a hurdle rate.
Hedge funds are starting to become a presence on the ASX. Absolute Capital, another Australian hedge manager, recently listed three funds on the exchange.