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Cavenagh Hedge Fund Gets Dutch Pension Money, Moves to Amsterdam from Asia

Date: Monday, June 14, 2010
Author: Bloomberg

Cavenagh Capital, set up last year by former Morgan Stanley and DBS Holdings Ltd. managers in Singapore, will start a new macro hedge fund in July after getting money from the biggest Dutch pension fund.

Andrew Gale and Lee Ka Shao moved to Amsterdam this month after getting a three-year seeding commitment from APG, which manages the assets of Heerlen, Netherlands-based Stichting Pensioenfonds ABP, said Gale.

The Luxembourg-domiciled Cavenagh Asia Fund, which seeks to profit from broad economic trends, will start with about $40 million, said Gale, who worked with Morgan Stanley in fixed- income sales in London and Singapore for more than 15 years.

Asian hedge-fund managers, especially startups and those overseeing smaller amounts, have been finding it tough to raise money as investors remain wary after the financial crisis. About 70 percent of the funds launched in the past two years had $50 million or less as of the end of March, according to Singapore- based GFIA Pte, which advises investors seeking to allocate money to hedge funds.

“The capital raising environment is improving, money is still looking for good places to go, but you’d have to have critical mass to attract assets; it’s a chicken and egg situation,” Gale, 48, said in a phone interview from Amsterdam. “Now we can build a meaningful track record based upon a meaningful amount of money.”

Cavenagh, which trades derivatives including currency and interest-rate options, plans to raise more assets from institutional investors such as pension funds and family offices in Europe, said Gale, who is chief executive officer.

Seeding Capital

APG’s investment in Cavenagh was made through IMQubator, which provides seeding capital to new managers.

Cavenagh “is a rare combination of highly original thinking, very methodical risk reward analysis with a strong instinct to find cheap option prices,” said Rikard Lundgren, chief investment officer of Amsterdam-based IMQubator. “The Asian macro space is well matched with the manager’s skill and method and he has an excellent track to prove it too.”

IMQubator requires the managers it invests in to be in the same office “as part of the close monitoring and transparency that we require,” Lundgren said. IMQubator has made five allocations of 25 million euros each to new managers and may make as many as four more commitments before the end of the year, he said.

ABP had invested capital of 208 billion euros ($253 billion) as of Dec. 31, according to the pension fund’s website. ABP is the world’s third-largest pension fund according to data from New York-based Pensions & Investments and Towers Watson.

Tail-Risk Events

As managing director of DBS’s Central Treasury Unit until 2007, Lee, 40, set up and ran the bank’s principal strategies business and produced returns that averaged 38 percent a year, Gale said. Lee grew the unit’s capital to almost $1 billion, from the $125 million that the Singapore-based bank, Southeast Asia’s biggest, had given him initially, Gale said.

Lee, Cavenagh’s chief investment officer, then joined Hong Kong-based Abax Global Capital Ltd., a hedge-fund manager in which Morgan Stanley bought a stake when it was set up in 2007.

Prior to joining DBS in 2001, Lee worked at JPMorgan Chase & Co., where he traded currencies, rates and derivatives for the bank’s market-making and proprietary trading business. He served as an army officer leading reconnaissance and intelligence missions in the Singapore Armed Forces from 1987 to 1990.

Cavenagh’s fund assesses how market participants position themselves in anticipation of events taking place and focuses on the “changing probability of an outcome,” Gale said. It will protect and potentially profit from unlikely occurrences that may prove disastrous for investors, known as tail-risk events, he said.

The fund will target returns of 15 percent to 20 percent, said Gale, who was most recently responsible for product development and asset raising at London-based Dexion Capital Plc.