Flowering Tree Grows Hedge Fund Fivefold, Outperforms Peers

Date: Thursday, March 18, 2010
Author: Business Week

Flowering Tree Investment Management Pte, set up by the co-founder of New York-based Sansar Capital Management LLC, has grown its Asian equities hedge fund more than fivefold as it outperformed peers.

Singapore-based Flowering Tree’s fund has grown to more than $70 million, from $12.5 million when it started trading in May, founder Rajesh Sachdeva, 41, said in an interview.

The fund was “up” in the first two months of the year, he said, declining to give performance details which are disclosed only to clients. Gains made from its bearish holdings more than made up for the losses from its bullish stock bets during the period, Sachdeva said.

“We are pleased with the way we handled the January, February volatility,” Sachdeva said yesterday.

Asia-focused long-short equity funds lost 2.3 percent in the first two months of the year, beating a 5.4 percent drop in the MSCI Asia-Pacific ex-Japan index, according to Eurekahedge Pte, a Singapore-based industry data provider. Fifty-one percent of investors in a Deutsche Bank AG survey said they would add investments in equity long-short funds, up from 31 percent in 2009, a report from the Frankfurt-based bank this week shows.

Flowering Tree expects the Asian stock market to post returns of “mid teens to early 20s in percentage terms” this year, in line with earnings growth, Sachdeva said. The MSCI Asia-Pacific ex-Japan index surged 68 percent last year.

‘Picker’s Market’

“2010 will be a year where markets will not be as directional as they were in 2009; it’s a much more stock picker’s market,” Sachdeva said. “We are excited about that environment; that’s when we expect to do well.”

The fund has “consistently overweight” the consumer industry for the past nine months, he said.

“We like defensive growth businesses where there’s predictability in earnings,” said Sachdeva, who travels twice a month visiting companies in the region and twice a year meeting clients.

The “optimal size” of the fund would be between $300 million and $1 billion, and the firm will break even when it reaches $100 million to $150 million, Sachdeva said.

Flowering Tree has a team of 12, including six investment professionals. The firm set aside $4 million in capital when it started to fund its business for at least two years.

Picking Partners

“It’s not just about the assets; it’s about finding the right partners who want to work with us,” said Elisabeth Thom, a partner at the firm who’s in charge of investor relations. “If we had different terms we would probably raise more money, but we have got limited capacity so we place a particular premium on investors who are committed to stay invested with us.”

Flowering Tree offers two fee structures to investors. The fund imposes a 5 percent fee on withdrawals during the first year for investors paying the standard 2 percent management fee and 20 percent performance fee.

Under another structure, which charges a lower management fee of 1.5 percent and performance fee of 17.5 percent, clients are barred from withdrawing money from the fund for the first year and are subject to a 5 percent fee on withdrawals during the second year. Still, each fee structure allows investors to withdraw as much as 5 percent of their holdings a year without any redemption fee or lockup.

Flowering Tree plans to register with the Monetary Authority of Singapore as a boutique fund manager as it seeks to obtain a license in India, Sachdeva said. Its biggest markets are Hong Kong, China and India which, combined, account for 60 percent of its trades.

A boutique fund manager in Singapore requires at least $100 million in funds under management.

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.