Ex-Lehman Fuchs Seeks $1 Billion for Nomura-Backed Hedge Fund

Date: Monday, August 10, 2009
Author: Bei Hu, Bloomberg

Global Opportunities Group, a hedge fund with roots to Lehman Brothers Holdings Inc., is seeking to triple assets to $1 billion next year by raising capital from outside investors for the first time.

The internal Asia-focused hedge fund now under Nomura Holdings Inc. plans to start marketing to other investors in the first half next year, its Hong Kong-based head Benjamin Fuchs said in an interview Aug. 7. The hedge fund that was reborn when Nomura took over Lehman’s Asian assets started trading in mid- April with $300 million capital from Japan’s largest brokerage.

The hedge-fund industry is recovering from the worst year on record in 2008. Hedge-fund assets grew in the second quarter for the first time in a year, to $1.43 trillion, Chicago-based researcher Hedge Fund Research Inc. said last week. Industry assets peaked at $1.93 trillion in June 2008.

“Lots of people can make money in a bull market,” Fuchs said in the interview. “The real test of this type of business is whether you can make money cross cycles: bull market, bear market, sideways market.”

The fund pursues four strategies: convertible bonds, equity volatility, global macro and credit trading. It beat the Credit Suisse Tremont multistrategy hedge fund index’s nearly 6 percent gain between April and June, Fuchs said. He declined to give specific numbers because of the fund’s internal nature.

Global Opportunities Group chose the diverse strategies because of its team’s experience and their negative correlation to each other, allowing the fund to generate positive returns even in a falling market, he said.

Bond, Credit Trading

Volatility funds seek to profit from price swings of securities. Global macro funds typically trade stocks, currencies, bonds, financial or commodity derivatives to take advantage of economic trends. Global Opportunities Group trades only publicly issued credit, convertible bonds, stocks and derivatives.

Convertible bond and credit trading contributed more than 70 percent of the profits so far, Fuchs said.

The fund earlier wagered on the recovery of the broader Asian high-yield bond market as spreads, or the extra returns that investors demand over Treasury bonds, narrowed, Fuchs said. More recently it shifted bets to the rebound of bank debt in Australia and Japan as concerns about the health of the financial industry ease, he added.

“In April or May, there were still a lot of questions about the financial health of banks,” said Fuchs. “But those issues have broadly been addressed through equity issuance, capital raising and government support.”

Credit Spreads

JPMorgan’s Asia high-yield bond index has rallied 33 percent in 2009 after slumping 18 percent last year when banks and funds cut holdings amid the credit crisis that has resulted in $1.5 trillion of writedowns and losses in the financial industry. Spreads for credit issued by Asian financial institutions remain at 524 basis points, or 5.24 percent, more than Asian credit’s 324 basis point average.

The fund’s other credit investments include high-yield bonds issued by Chinese real estate companies and resources companies in Indonesia and Australia.

Global Opportunities Group, which employs about 18 people in Hong Kong, traces its roots to Lehman’s decision in August 2007 to set up an Asian-based internal fund that trades global assets, said Fuchs. Rebuilt after Lehman’s collapse last September as a separate investment company wholly owned by Nomura, it trades primarily Asia-Pacific securities yet plans to expand into a global fund over three to five years, Fuchs said.

It hasn’t been decided whether Nomura will increase its capital in the fund when it opens to external investors, said Matthew Russell, a Hong Kong-based Nomura spokesman.

Fuchs began his career 18 years ago trading futures and options for Baring Securities in Osaka, Japan. He joined Lehman in Japan in 1995, rising to become head of trading for the Asian equity division before setting up the Global Opportunities Group in 2007, which had targeted to become a $5 billion internal fund.

To contact the reporter on this story: Bei Hu in Hong Kong at bhu5@bloomberg.net