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Castle builds on hedge fund growth in Asia

Growth in the number of Asian hedge funds in recent years has enabled London-listed fund of Asian hedge funds Castle Asia Alternative to build a multi-strategy portfolio which has held up well since launch in 2005.

The fund, formerly the KGR absolute return fund, has around 1,200 hedge funds to choose from and its investment adviser LGT Capital Partners says there are talented managers in most strategies.

At the beginning of the month, the portfolio held 26 Asian hedge funds with 54 per cent allocated to long/short strategies, 26 per cent to event driven strategies, and 11 per cent to relative value strategies.

The net asset value of the fund had risen by 6.47 per cent since launch up to the end of June 2009, while the MSCI Asia Pacific Index fell by 5.3 per cent over the same period.

Lead portfolio manager John Knox says market sentiment is positive in Asia, due to low interest rates, growth in lending and policies aimed at maintaining strong liquidity and stimulating domestic demand. Asia has not been as affected by the financial crisis that has hit the West. Asian hedge funds were not highly leveraged and Knox says its economies are continuing to grow.

Knox adds that CAA is focusing on liquid, flexible strategies and recently increased its allocation to three Japanese long/short managers because investment opportunities are being created by company cost restructuring and the Japanese market is catching up with the rest of Asia.

Knox says: “We remain cognisant of the storm clouds that will continue to cause volatility, and continue to focus on liquid, flexible strategies running variable directional risk. Emphasis also remains on opportunities in foreign exchange and rates strategies given policy action and macro volatility, and on other niche strategies.”

The niche strategies are focused on onshore China corporate bonds, closed-ended funds and cross border arbitrage.


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