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Asia Hedge Fund Firm Offers to Insure First 10% of Losses

(Bloomberg) -- A new entrant to Asia’s hedge fund market is offering to insure investors against the first 10 percent of their losses.

Clients putting money into Infini Capital Management Ltd.’s multi-strategy hedge fund may choose to pay a higher performance fee in exchange for the insurance, according to Michael Friedlander, the Hong Kong-based firm’s chief operating officer. CEO Tony Chin is providing the protection, along with other investors in Infini’s founder share class.

Hedge fund managers are enticing investors with new fee models after the industry reported its first annual loss in seven years last year and as new fund starts sank to an 18-year low. Investors pulled more money from the $3.3 trillion industry than they added for the past four quarters, eVestment data show.

Asia Hedge Fund Firm Offers to Insure First 10% of Losses

“It’s always difficult for a newly launched fund to raise capital,” Friedlander said. “It’s important to eliminate as much risk as possible, particularly for a situation where there’s not a portable track record, or where the team doesn’t have a long history together. That’s why we decided to offer an incentive like this.”

Infini plans to start trading next month with $100 million, including $50 million from its founders. The other $50 million will come via a three-year partnership with a U.S. institution, which Friedlander and Chin declined to identify. Its money will be left in an account separate from the hedge fund, which Infini can dip into if assets in the hedge fund aren’t sufficient. Chin has committed to invest another $50 million by year-end.

Asia Hedge Fund Firm Offers to Insure First 10% of Losses

The group aims to raise as much as $250 million by December. Only investors in the so-called “early-bird” share class are eligible for loss insurance. That class is capped at $100 million, or whichever amount the firm can raise for it in the first 12 months, Friedlander said.

If the losses run higher than 10 percent that’s investors’ bad luck, and insurance will only be paid out when investors redeem from the fund. Infini is charging a 30 percent performance fee for the privilege versus 20 percent for other investors. It doesn’t charge management fees, opting instead to pass those expenses on to investors.

Asia Hedge Fund Firm Offers to Insure First 10% of Losses

Infini will find itself up against big international hedge fund platform rivals like Point72 Asset Management LP, Millennium Management and ExodusPoint Capital Management LP that have been expanding in the region. (Hedge fund platforms allocate capital to multiple portfolio managers, setting risk limits for them.) While those bigger players don’t typically offer the same loss insurance, they do compete for talent.

Infini will initially focus on hiring traders with high risk-adjusted returns whose strategies can’t accommodate large amounts of capital.

“One very common characteristic of the Asian market is the size of the book is obviously not as big as in the U.S.,” Chin said. “But there are a lot of very niche strategies, a lot of arbitrage opportunities in Asia.”

Such niche traders are often overlooked by larger platforms which are under pressure to deploy tens of billions of dollars, Friedlander said.

Infini will start with three teams:

  • Chin will invest in initial public offerings and secondary share sales
  • Stanley Huang, who joined from Hong Kong-based hedge fund Nine Masts Capital Ltd., will seek to profit from the pricing differences between American depository receipts and company shares listed elsewhere
  • Li Yuxin, a former managing director of Parametrica Management Ltd., will use the so-called statistical arbitrage strategy to trade yuan-denominated class-A shares listed in China. Such strategies seek to profit from pricing inefficiencies in baskets of stocks

Infini plans to add a global statistical arbitrage strategy later this year.

Chin was previously a Morgan Stanley mergers and acquisition banker who later moved into private equity. Friedlander was most recently chief operating officer of Hong Kong-based hedge fund Vanhau Asset Management and has also spent time at Millennium as its regional head of risk and Hong Kong branch manager.

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