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"Ninety-five percent of hedge funds are focused on G7 countries and have G7 investors, but there’s been a 20-year bull market in the Bric countries and I don’t think we’ve begun to see the flows that we will"
Lou Gerken, Gerken Capital Associates |
When Euromoney last interviewed hedge fund manager Lou Gerken in June 2006, he was confident that he would be able to open his Latin American hedge fund "soon". A year of contractual negotiations followed, talks with the partner firm in the joint venture are now all but complete and the fund is ready to launch. Gerken is excited to move one step closer to his vision of covering the emerging markets’ brightest hopes.
"Ninety-five percent of hedge funds are focused on G7 countries and have G7 investors," says Gerken, "but there’s been a 20-year bull market in the Bric countries [Brazil, Russia, India and China] and I don’t think we’ve begun to see the flows that we will. The aim with Gerken Capital Associates is to have five share classes – India, China, Latin America, Russia, Middle East – so that by the end of this year we’ll have a platform in place whereby investors can rotationally trade between the classes according to their preference. We should then be able to generate additional alpha from cross-border trading opportunities, since our managers in each country or market are in constant dialogue with each other."
GCA will adopt the same model for its Latin fund as it has for China and India: a joint venture with a local player with a multi-strategy approach. Gerken is unable to disclose the name of the JV partner, but Euromoney understands it is a Spanish bank, probably BBVA.
"What I can tell you about the fund," says Gerken, "is that we will have a minimum of a three-person investment team in every major market in Latin America. The key differentiator for Latin America is that it is a multi-country market, but there’s also a slight difference in strategy. Whereas in China we tend to have an equity long/short bias, in Latin America fixed income is much more important and will make up something like 50% of the portfolio, with only 35% in equity and the rest in FX."
The attractions for a hedge fund like GCA of securing the help of a leading bank with strong local connections are obvious, but what’s in it for the bank?
"It’s a good question," says Gerken. "You might well ask, since they obviously don’t need our help just to raise money, but I think the value proposition for them comes in our investment experience in the emerging markets, our ability to generate alpha, and that our structure allows us to be something of a safe harbour. By that I mean that they are able to compensate some of their people rather than lose them. The people from our partners have professional reasons for wanting to work with GCA, which include the sense of entrepreneurial adventure and the ideas generated from talking to their counterparts in the other funds, but they also get some of the compensation of working for a hedge fund in addition to being a salaried employee."