Sponsors of Asia's latest fund of hedge funds, ZCM Matched Funding Corporation, have extended the subscription deadline for the fund by two months as investors calm their jittery nerves following the US terrorist attacks.
The Javelin Asia Pacific Principal Protected Notes fund was due to be closed on 7 December but that date has been pushed out to mid-February 2002. The fund is sponsored by ZCM, a subsidiary of Zurich Financial, and Allen Perkins, the Hong Kong-based investment advisory firm. ZCM is doing the fund allocation and providing the guarantee for the Javelin fund, while Allen Perkins is working on fund selection and distribution to its client base of private banks and institutional investors.
Linda Wong, group deputy director at Allen Perkins, says she is hoping to raise between $50 million and $75 million before the February deadline, but says the fund will go ahead with a minimum of $20 million. With a minimum subscription rate of $1 million, that would mean attracting just 20 clients to the fund. But Wong questions whether this minimum rate is now too high considering poor investor sentiment and the low interest rate environment.
"We are now talking to Zurich about whether we should reduce the subscription floor of $1 million," she says. "While this might have been feasible a few months ago, the terrorist attacks in New York have made investors wary of parting with their money."
She says the most likely buyers will be Asian high-net-worth individuals buying through syndicates set up by their private bankers. "We are hoping to capture some interest from the US and Europe as well, but at the moment our focus is marketing to Asian-based clients particularly those in Taiwan, Singapore and Japan."
The Javelin fund is a guaranteed fund of hedge funds with two components -- an actively managed portfolio of 10 Asian hedge funds and a discounted notes program representing the guarantee. The guarantee is underwritten by Zurich. Wong says the fund has the flexibility to be 100% invested in the hedge funds, but in this low interest rate environment, is likely to hold a portion of its assets in the notes program.
Investors are sure of receiving 100% of their invested principal at the end of the seven-year lock-up period. This lock-up was recently extended from five years to seven, but an exit fee will only apply if a subscriber redeems their investment in the first five years.
Javelin comes with a 1.5% management fee and a performance fee of 15% on new trading profit. The 10 hedge funds earmarked for investment include the Whitney New Japan Fund, LIM Asia Arbitrage Fund, Pacific Asset Fixed-Income and Currency Fund, and the West Broadway Global Arbitrage Fund. All funds are invested entirely in Asian securities.
The strategic diversification of the portfolio will be fairly diverse, with the largest allocations going to equity long/short funds (41%) and convertible arbitrage and CB option arbitrage funds (26%). The geographic split includes 47% Japan-based funds and 21% Hong Kong-based funds. The Javelin fund will have a maximum leverage level of 200%.