Flowering Tree to Grow Hedge Fund in ‘Fertile Environment’

Date: Thursday, June 4, 2009
Author: Netty Ismail, Bloomberg.com

Flowering Tree Investment Management Pte, set up by the co-founder of New York-based Sansar Capital Management LLC, plans to grow its Asian equities hedge fund by about 20 times its starting capital within the next two years.

The Singapore-based fund made its first bets on rising and falling stocks in Asia outside Japan last month, starting with $12.5 million sourced from founding members, family and friends, founder Rajesh Sachdeva, 40, said in an interview yesterday. It will grow to $15 million to $16 million by July, and plans to reach $200 million to $300 million in two years.

Flowering Tree’s startup will have to source funds from a smaller pool after clients withdrew almost $24 billion from the region’s hedge funds last year, according to Eurekahedge Pte data. An index tracking Asia-focused long-short funds rose 4.2 percent in April, the best performance of nine groups followed by Singapore-based Eurekahedge, after the strategy slumped 22 percent in 2008 in the industry’s worst year on record.

“Equity-focused funds right now would probably be able to pull in some money given the optimism in the market, although a lot of people believe this rally might end pretty soon,” said Ankur Samtaney, an analyst at Eurekahedge. “Investors and managers are taking a cautious approach at this time.”

The regional benchmark MSCI Asia-Pacific excluding Japan Index has rallied 63 percent since its March 2 low after tumbling 53 percent last year. Members of the index are valued at an average price of 1.8 times the book value of their assets, compared with 2.5 times in 2007, before stock markets collapsed, according to data compiled by Bloomberg.

‘Fertile Environment’

A “fertile environment for stock picking,” will help the fund build a track record to lure investors, Sachdeva said. “It’s a great time to be picking stocks right now; it’s not a great time to raise money.”

Sachdeva was a partner from 2005 to 2008 at Sansar Capital, a New York-based firm that manages an Asian equities hedge fund, where he helped assets under management grow to $3 billion. He was unable to give performance details for the Asian fund.

He was previously an investment analyst at Kingdon Capital Management LLC and Alliance Capital Management Holding LP, now known as AllianceBernstein Holding LP.

Flowering Tree’s new fund’s equity long-short strategy is more likely to work this year and in 2010 than last year, when companies’ fundamentals were ignored during “a period of extreme market dislocation,” said Sachdeva.

Sachdeva said the fund will reduce its long and short positions in volatile markets.

Reinvesting

“You size up your balance sheet significantly when it’s working and significantly shrink your balance sheet when it’s not,” Sachdeva said.

Flowering Tree, which has a team of 10, including four investment professionals, has set aside $4 million in capital to fund its business for at least two years, Sachdeva said.

“I’m lucky that my previous startup was relatively successful and was profitable for me, so I’m reinvesting some of those profits and starting an organization like this upfront, as opposed to building it out at a later stage,” he said.

Investors are likely to put money into Flowering Tree’s hedge fund from the end of the year, he added. The hedge fund, which targets average annual returns of “mid-teens to high- teens” over five years, has the capacity to grow to $1 billion to $1.5 billion, he said.

To contact the reporter on this story: Netty Ismail in Singapore nismail3@bloomberg.net.