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Infovest 02-2004

QAM to launch two funds Alex Frew McMillan February 3, 2004 EST Singapore-based startup Quant Asset Management is preparing to launch two long/short equity hedge funds on April 1.

The QAM Asian Equities Fund will invest throughout the Asia Pacific region, including Japan, Australia and New Zealand, while the QAM Global Equities Fund will invest worldwide.

The company was founded in November by Frank Holle, the co-manager of the AIMS Absolute Asia hedge fund, and a partner he cannot identify until he leaves his current job.

Holle says QAM's funds will be unique because of the quantitative models they will use. The equity models analyze factors such as earnings momentum, valuations, price-to-cash ratios and dividend yields. But they will be dynamic, meaning the weightings will change depending on market conditions. So QAM will be opportunistic, with its bias toward value or growth stocks determined by the market.

"Lots of models are multifactor models, but they are static, they take criteria and spit out a list of stocks based on that," Holle said. "We screen the market for which factors are really important now...What are investors paying for now, is it value stocks, is it growth stocks? We can detect that."

The funds will each hold around 60 stocks. It plans to hedge its long equity positions with swaps on the MSCI Asia Pacific Free benchmark for the Asian fund or on the MSCI World Free benchmark for the global fund.

Holle noted there are capacity constraints for QAM's strategy, because the models identify the top 2% of stocks and require each stock to be covered by at least four analysts. "Our funds have a limitation very much in terms of capacity," Holle said. "But as long as the market is large enough, we can apply this methodology."

Because of liquidity concerns, QAM is capping the global fund at $250 million and the Asian hedge fund at $100 million.

QAM plans to launch five more hedge funds: a European equities fund; a US equities fund; a Japanese equities fund; a global fund investing in commodity equities; and a syariah equities fund, which will invest according to Islamic principles, avoiding companies involved in alcohol or that pay interest.

For the first two funds, the company is charging a 1.5% annual management fee plus a 20% incentive fee. The minimum investment is $150,000.

The hedge funds will be restricted to at most 30 accredited investors. QAM has seed capital from a fund of funds, an Asian family office and a European family office.

The seed investors have been using recommendations generated by QAM's models for the past nine months, Holle said, showing that they work. But QAM will stop sending selections once the hedge funds launch.

The US-dollar denominated funds will be domiciled in the British Virgin Islands. KPMG will be the auditor, with Harney, Westwood & Riegels acting as lawyers in the Virgin Islands and Fullbright & Jaworski doing the same in Hong Kong. Citco Fund Services is the administrator.

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