Aussie partners start market-neutral Asian hedge fund

JP Morgan and Deutsche veterans Christianakis and Cormie partner with Westpac.
Two equity-markets veterans have combined to build a new Asia-focused hedge fund. Andrew Cormie, former managing director for the equity business at JPMorgan Asset Management in London, and Leon Christiankis, most recently managing director for equity derivatives trading at Deutsche Bank Australia, have established Voyager Funds Management in Australia.

Voyager plans to open the Voyager Pan Asia Fund on July 1. It will start with assets of A$10 million ($7.48 million), rising to an initial target of A$150 million before a soft close, before aiming at A$500 million as the next step. In the near future, the partners want to launch a US dollar-denominated fund as well.

The fund will run maximum bet risk positions of +/- 15%, which by Asian standards is within conventional market-neutral parameters. In the United States, with its more efficient shorting markets, one might label a fund market-neutral if it topped out at 5% exposure.

Liquidity is paramount and the partners aim to be able to exit positions within two days of average trading accounting for no more than 20% of daily volume. It helps that they are trading in bigger cap, liquid stocks.

The fund has adopted benchmark market-neutral profit targets of 15% per annum returns with less than 10% volatility. Capital preservation is important as both men have tied up a significant portion of their own net worth in the fund. Fees for the fund will be 1.5% and 20% with a high-water mark but no hurdle rate. Targeted leverage for the fund is 250%.

The team also includes two PhD qualified analysts who run the fundÆs quant model. It is not a quant fund, but does use an initial quant screen to monitor a universe of 1100-1300 large cap stocks, boiling these down to a short list of 110 pairs where there are two standard deviation movements.

ôThereÆs constant back-testing and performance testing of that model, backed up by error correcting systems,ö says Christianakis. ôIt looks for price anomalies in pre-identified pairs where there have been stable relationships in pricing and spots when the relationship has moved to extremes.ö

Taking the short list, Cormie and Chrisianakis then apply rigorous fundamental analysis of the stocks. ôWe reduce them to 40-60 pairs in which long and short trades will be put on,ö says Cormie. ôThatÆs where our 24 and 22 years of investing experience is important.ö This then differentiates Voyager from a more quant-oriented fund that just applies a qualitative overlay from the stats, or, in more quant-intensive cases, go straight to the black box for an automated electronic trade, disintermediating the managerÆs further input.

Westpac owns 50% of the equity in the management company, has co-invested and has provided working capital.

VoyagerÆs auditors are Ernst and Young, lawyers are Mallesons, fund administrator is Citco and the prime broker is Morgan Stanley.
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