Verde melds activism-lite, SRI and private equity

Carl Icahn's former lawyer launches an Asia hedge fund playing the convergence story under a green banner.
Verde Asia Fund, a new hedge fund run by an established activist manager from the United States, is expected to launch in the next two months.

Glenn Fung will head VerdeÆs Asian operations. He formerly worked as an EVP at HSBC Securities. Sydney Yeung will be the fundÆs head trader. Yeung was the co-head of non-US equities at Van Der Moolen, an international trading firm, and co-founder of Flashlyme, an Asian hedge fund. They have chosen Singapore for their Asian base of operations, believing it offers great opportunities for start-up hedge funds.

The CEO of the fund - which is based in New York - will be Gary Duberstein, former general counsel to Carl Icahn and co-founder of activist hedge fund Greenway Partners. VerdeÆs chief investment officer will be Clyde Carter, who used to lead the international investment team of Banc One. They will be based in New York, but will travel frequently to Asia.

The fund plans to take a philosophically Asian approach towards shareholder activism by nudging corporate change through advocacy, rather than pursue a more typically American hard-as-nails approach. Executives declined to discuss the fund's target investors, target returns or fees.

The Verde Fund is managed by the Delaware registered Verde Management. It is a long/short fund with a pronounced long-bias of at least 50% net long. The jurisdictions in which Verde expects to concentrate are Japan, Korea, Singapore, Malaysia and possibly even Hong Kong, should opportunities arise for shareholder activism.

Other countries in Southeast Asia are less of a focus for Verde, as has been the case with other Asian activist strategies, given the prevalence of family-owned concentrations of shareholding blocs there.

Verde's managers seek to uncover catalysts that unlock growth in share prices, with an expected concentrated 20-30 core hodlings sized $3-5 million, although the highest conviction bets could see holdings as high as $10-15 million. The managers consider that their strategy is scalable and can accommodate a larger portfolio span and open position size in due course.

Positions may be held for around three years, so this fact, combined with the advocacy approach, leads Verde into the æconvergenceÆ theme between hedge funds and private equity. This strategy, also employed by other activist funds, has put them in the vanguard of the hedge fund/private equity cross-over trend.

ôEven though there is this Carl Icahn connection, actually labeling us an æIcahn cub fundÆ would not be accurate, as he tends to take a harder line on activism,ö says Glenn Fung in Hong Kong. ôVerde is partly activist and emphasises the positive by focusing on corporate social responsibility issues. That is not to say we will never put a bid on the table, but we are trying to take a softer behind-the-scenes approach more in line with Asian culture than American culture.ö

Possible current investment themes for the fund include the consumerist ôAsia goes shoppingö, with the growth of AsiaÆs more affluent middle class. Another possibility is investing in still undervalued commodities-based companies whose operations fit with VerdeÆs sustainable environmental approach.

So for example, Verde might take a long position in biofuels or plantations, and, if the underlying company fundamentals warrant, short an environmentally unfriendly mining company pumping toxic chemicals into the sea û on the rationale that those destructive acts would ultimately boomerang on the company.

ôCompanies that pass our economic screens will be scrutinised for their governance practices, internal and financial controls, environmental and employment policies and practices, executive compensation and contribution to the community,ö says Fung. ôWe try to identify companies that have good governance and ethical business practices because we believe that such companies can better sustain their growth profile and minimise 'hidden' future liabilities. We donÆt need a high stake to encourage change; even a 1-2% stake can achieve results and unlock value.ö

Target assets under management for VerdeÆs launch are $25 million, and their plan is to aim for $500 million under management after six-12 months.

Morgan Stanley is the prime broker, Meridian Fund Services is fund administrator, Rothstein Kass is accountant and Kleinberg, Kaplan, Wolff and Cohen is the lawyer.

The next possible step in VerdeÆs plan is a green-themed fund based on socially-responsible investing (SRI) principles. This fund may have investments in common with the sister Verde Asia Fund but will refrain from investing in companies which produce tobacco or booze, gambling, or weapons. The green fund will seek out companies that offer profitable investing opportunities in areas such as water, waste treatment and alternative energy.
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