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Former Och-Ziff, Ivory Senior Asia Managers Start Hedge Fund

Date: Wednesday, October 7, 2009
Author: Bei Hu, Bloomberg

Raaj Shah, an ex-partner of Och-Ziff Capital Management Group LLC, co-founded a hedge fund last month trading under-researched and mispriced Asian securities affected by events such as mergers, tax changes and forced selling.

The almost $50 million Matchpoint Asia Fund Ltd. targets annual returns of 15 percent to 17 percent without betting on market direction, Sean Debow, chief operating officer and co- founder of its adviser Matchpoint Investment Management Asia Ltd., said in an interview. Hong Kong-based Matchpoint’s nine- person team has the capacity to manage $700 million, he added.

“We see arbitrage opportunities in Australia where there are a lot of takeovers and tender offers,” Debow said yesterday. “We see a substantial number of securities that are mispriced and not as well understood in India, Taiwan and China.”

Startups led by former senior managers of global fund houses and investment banks are diversifying the range of Asian hedge fund offerings, which have been dominated by equity products betting on rising stock prices. Equity pools accounted for 72 percent of the number of Asian hedge funds and 53 percent of the assets they oversaw at the end of last year, according to Chicago-based Hedge Fund Research Inc.

The HFRX Equity Market Neutral Index lost 6.3 percent this year against the 11 percent gain of the HFRX Global Hedge Fund Index.

Shah, Matchpoint’s 34-year-old chief investment officer, spent 12 years with Och-Ziff, the New York-based hedge fund firm led by Daniel Och. He co-managed Och-Ziff’s Asian operations before leaving in December. Debow, 42, was most recently Asia research director and Asia business head of Los Angeles-based Ivory Investment Management LP.

‘Turning Point’

Och-Ziff’s then $16.4 billion OZ Master Fund lost 16 percent last year. The $2.4 billion OZ Asia Master Fund fell 31 percent, according to the annual report.

“We’re at the turning point right now in terms of the availability of talent for the hedge-fund industry in Asia,” said Charles Stucke, Chicago-based global chief investment officer of Guggenheim Investment Advisors LLC, which manages more than $50 billion of assets.

Matchpoint will use a so-called bottom-up approach to select its investments, Debow said. The bulk of its holdings will consist of listed shares of companies. About 10 percent of the assets would be listed securities incorrectly priced because of forced selling by investors, short-term changes in the issuers’ cash flows, or other types of corporate distress events, he said.

It will invest in securities whose prices are expected to be affected by “hard catalysts,” including publicly announced corporate actions such as mergers or events with a number of possible outcomes. Matchpoint will exploit mispricing of those securities before the events are completed, Debow said.

Distressed Prices

Company executives are shifting their focus from “firefighting” during the financial crisis back to growing their businesses through strategic investments amid “the calm after the storm,” Debow said.

Matchpoint will also trade securities with “soft catalysts,” meaning they will be affected by short-term changes in factors such as consumption patterns, taxation rates, regulatory environment, or costs of goods sold, he said.

A third category of investments will be securities trading at distressed prices, hit by forced selling by investors, or events such as material changes in near-term costs and selling prices of their products, Debow said.

The Matchpoint fund will focus on Hong Kong, China, Australia, Japan, Taiwan and South Korea, and to a lesser extent, India, Singapore, Indonesia and Malaysia, he said.

Och-Ziff, Ivory

Och-Ziff invested about 20 percent of the $27 billion assets under management at the end of December in Asia, according to its annual report.

The company in December cut at least 10 jobs in the region as its funds lost money amid falling markets and investor withdrawals, people said then. Shah departed that month to “do something more entrepreneurial,” Debow said.

Debow left Ivory, which decided in December to close down the Asian operations to focus on U.S. securities, he said.

He declined to give his and Shah’s earlier investment performances, saying the track records are owned by their former employers.

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

Netty Ismail in Singapore nismail3@bloomberg.net.