Tom Burroughes
Group Editor in London
15 October 2012
Top News
There are a lot of market-stirring events
at the moment so a hedge fund business that seeks to exploit the mis-pricings
caused by mergers, legal shocks or other big developments should have plenty of
work.
At the Cube Global Opportunities Fund, a
Caymans-registered vehicle which has been running since May 2009 and has $100
million of assets, it was recently opened to outside investors. Its manager
reckons this portfolio has a particular swerve on how to make the most of
events.
“We have tried to do something
substantially different. We typically operate in sectors with lots of events. A
traditional event driven fund focuses on publicly announced events (such as
mergers) that form the exit for their trade; we focus on events that create
very good entry opportunities,” Nick Linane, portfolio manager at Cube Capital, told WealthBriefing in a recent interview.
“In particular, we focus on companies or
sectors where there are disruptive events that change the perception of risk
and influence the stock or bond prices. These disruptions often cause
instability to the investor base as many of the traditional investors conclude
that the new risk factors are not ones they are prepared to tolerate; this can
lead to sharp falls in prices as some investors seek to offload their exposures
at almost any price,” Linane said.
This approach means that unloved sectors
can be worth a look, Linane said. Take the case of European financials.
“While a lot of what is going on in Europe is creating a lot of anxiety around the financial
sector, in the long term we consider that a lot of the underlying trends in the
financial sector, whilst mostly negative for equity, are actually positive for
credit. Bank deleveraging and the pressure on banks to hold more and more
equity capital are simple examples of this,” he said. Cube
has bought the debt of several UK
banks, for example. “Those investments have moved up in price this year.”
“We look at both equity and credit. We
have tended to do more on the credit than equity side. We have been
particularly active in the subordinated debt of banks and insurance companies
in Europe,” he said.
The fund has also bought into areas such
as Japanese residential house building, a sector that had been hit by the long
drawn-out problems in that country’s real estate market.
Another example Linane gave of interesting
events were of Chinese firms, listed on the US Nasdaq, that got indiscriminately
pulled down in the aftermath of fraud discovered at a US-listed firm called
Sino Forest Corporation. There are about 200 such businesses listed in the US.