Northpoint will shortly be launching its first fund, an Asia equity long/short fund with a Korea focus. Nam Ki Hong, Northpoint's managing partner and ex-head of Korean research at Morgan Stanley, says the fund will be market neutral with at least 40% of its investments in Korean stocks at any one point.
The fund will be targeting a per annum rate of return of 20% (before fees), with a volatility of 10%.
Northpoint will launch its fund with less than $5 million under management, most of this consisting of capital from the partners and their families.
"We're not aggressively seeking institutional investment at the moment," says Hong, "although we are open to meeting with institutions and fund-of-funds. Initially we're keen to focus on our investment process. None of our team members have an institutional long/short track record, so we want to develop this before we roll out the fund to institutions."
He expects that when the fund is ready for the institutional market, most of the interest will come from non-US and US tax-exempt institutional investors.
Northpoint will have nine team members involved in the investment process. Each will a particular sector responsibility and will pick winners and losers in their sector focusing on Korea, but also considering the rest of Asia. While the fund itself is offshore and will operate out of Singapore, the research team will be based on the ground in Korea.
Hong feels his team's combined experience in the Korean market places them at a competitive advantage for operating its strategy.
Hong himself spent the last two years heading up Morgan Stanley's Korea research team. Prior to that he led the chemical research team at Merrill Lynch and spent several years as a Korean portfolio manager with JP Morgan.
In addition Peter Elston, a senior partner at Northpoint, previously spent 11 years with Mercury Asset Management focusing on the Asian markets, with an emphasis on Korea for four of those years. Paulo Rhee, another senior partner, has followed Korean stocks for eight years and was most recently head of the financial sector research team at ABN Amro.
Northpoint has appointed Goldman Sachs as its prime broker and Bank of Bermuda as its fund administrator.
Commenting on his decision to forgo the institutional world to set up his own fund, Hong says, "There is tremendous and growing demand for absolute return products. As the regulations improve, the practicality of shorting stocks in Korea and Asia as a whole is becoming increasingly viable."
Northpoint joins a handful of Korean focused hedge funds established in recent years. The oldest is CoreVest, but others include CK Equity Select Fund and Rhee Capital.
Rhee Capital's Rhee Namuh says his offshore fund currently has $27 million under management. Since Rhee launched the equity long/short fund in 2002, it has seen an annualised return of 10% with a volatility of 7%. According to Namuh, his investors are overseas high net worth individuals, institutions and corporations with some local investors.
"We have seen a significant improvement in environment for hedge funds in Korea over the last few years," Namuh comments. "The costs of shorting have come down and there have been some regulatory advances. Korea is attractive for hedge funds because the market is has a good level of depth and diversity as well as high quality companies."
He points out that the key problem in Korea is talent. Most managers experienced in the Korean market have not had any background with absolute return strategies. However, Namuh notes this is changing, and as managers gain experience in this space we could see a sharp growth in Korea's hedge fund industry.
