Packer polishes up GEMS fund
Australian Financial Review
Monday November 16, 2009
A year after sounding the retreat from the funds management business with the delisting and downsizing of the Ellerston GEMS fund, James Packer's Ellerston Capital is expanding the business and has plans to reopen the flagship fund to new investors and raise money for a range of new investment vehicles.The move to expand the equities funds management business managed by Mr Packer's private company also contrasts with his efforts to shed direct equity exposures across his business empire by selling substantial stakes in companies including Challenger Financial Group, property developer Sunland and jobs website Seek.Ellerston's chief investment officer, Ashok Jacob, who has been making presentations to raise money for new funds, said investors were keen to play the recovery in equity markets but were fearful of a repeat of last year's losses.Ellerston is taking a defensive stance across portfolios including an Asia-Pacific fund, Australian equity product and a global long-short fund.Headwinds such as the fading impact of stimulus packages, rising interest rates and the unwinding of the dollar carry trade made the backdrop vulnerable to further shocks, Mr Jacob warned. Like many hedge funds, Ellerston's flagship Global Equity Managers (GEMS) fund suffered heavy redemptions over the year to June, particularly as some fund-of-hedge-fund clients scrambled for liquidity during the market rout at the end of 2008.Mr Jacob is circumspect of the rally in global equity markets and has positioned GEMS with only a slight long exposure. "We are pretty cautious," he said. "Some sectors and markets are priced to perfection [and] retail stocks around the world have bounced too aggressively."The Australian market had been driven by a "dash to trash", he said, where overleveraged stocks, small miners and cyclicals had risen in value because investors jumped in for fear of missing the rally rather than backing sound fundamentals.Mr Jacob said such factors made him wary of the sustainability of the rebound. GEMS is a global long-short fund with an Asia-Pacific bias, and posted an 18.7 per cent loss for the year to June against a drop of 26.3 per cent for the MSCI World Index. Net assets in the fund fell by 44 per cent to $448.9 million after $207.8 million of redemptions and $145.3 million of losses, nearly three times the 2007-08 loss of $49.4 million.The Packer family was still the largest holder in GEMS, with a stake of less than 20 per cent, Ellerston chief executive Brian O'Sullivan said. The fund would focus on more liquid investments after its delisting, and was distributing funds from its private equity holdings.GEMS was delisted in November 2008 to close its large discount-to-net-asset value of up to 40 per cent after markets fell. The fund is restructuring so investors can enter without going through another entity - a move that will cut management fees from 2 to 1.5 per cent and performance fees from 20 to 16.5 per cent.This recognised the new backdrop, Mr Jacob said. "No one has taken risk off the table, [but] we've derisked and cleared around the edges because it was the prudent thing to do." Ellerston plans to launch several funds in the next six months, a move that will lift Mr Packer's exposure to investment-fee income after cutting his stakes in listed firms Seek, Challenger and Sunland.Institutions and asset consultants seeking defensive plays had shown greater interest in GEMS since the downturn, Mr Jacob said. GEMS's biggest holding is Coca-Cola Amatil; others are Telstra and Metcash.KEY POINTS Ellerston Capital aims to expand its equities funds management. The firm plans to launch new funds, and will take a defensive stance.
© 2009 Australian Financial Review