Senrigan Capital, among Asia's relatively few $1 billion (651 million pounds) hedge funds and a firm run by former Citadel star trader Nick Taylor, is counting on a wave of China outbound deals to help fuel a performance turnaround in 2012.
British-born Taylor, who is one of only five or six managers in Asia to grow a fund to the $1 billion mark post-2008, told Reuters in an exclusive interview that his 2012 strategy would focus mainly on tracking mergers and acquisitions.
That category will be led by agricultural technology and other assets abroad, Taylor said.
Our strong focus for this year is hard events. It's deals, Taylor said in the interview at his modest Hong Kong office. Right now, the hard catalyst part of our portfolio is predominantly outbound China bids.
Asia's post-2008 class of major hedge fund launches includes a few well known names, with Taylor, Seth Fischer, Carl Huttenlocher and Morgan Sze among them.
Last year proved to be a tough one for some of the new funds. Reuters reported on Tuesday that Sze, a former Goldman trader, was down 6.8 percent in 2011.
Senrigan, a Japanese term which means 'the eye that can see a long distance', gained 5.85 percent in 2010 and lost 8.6 percent last year, according to a source with direct knowledge of the matter.
By comparison, Asia-focused hedge funds as measured by the Eurekahedge Asia index lost 8.4 percent.
Losses, across the entire hedge fund industry, appear to be the result of a worse-than-expected market performance in the second half of the year.
Senrigan focuses on companies in Japan, Greater China and Australia. The fund bets on corporate actions taken across Asia, and also Europe, among other areas.
Senrigan declined to comment on fund performance numbers. One transaction it successfully traded last year was the China National Chemical Corp (ChemChina) bid to buy a controlling stake in Israeli generic agrochemicals maker MA Industries.
The fund makes its money by participating in deals and playing across the capital structure, i.e. convertibles and equities, said a trader who has done business with Taylor, and did not want to be identified. As for Taylor, the trader said he's top class.
The trader surmised that what hurt Senrigan and other hedge funds is that hedges failed later in the year, because nearly all elements of the markets moved down, and such correlation makes hedging very difficult.
An event-driven hedge fund normally has a few different strategies that prompt the fund to pounce on shares of a company, making a bet the stock will either go up, or down.
In a catalyst plus value strategy, a hedge fund might buy a stock which it believes is trading cheaply or has a big announcement looming that isn't yet public.
A soft catalyst strategy focuses on outside factors such as interest rate hikes or regulatory changes.
Corporate actions are known as a hard catalysts, which refer to publicly announced company events such as an M&A process or a spin-off. The hedge fund will bet whether or not that announced action succeeds, or fails.
Given the current economic climate, that latter strategy is where Taylor is comfortable right now.
Right now, a vast majority of our exposures are in corporate actions and unless somehow the world fixes itself, becomes highly predictable and benign, it will be that way for some time, he added.
Only 29 hedge fund firms in Asia managed more than $1 billion in January 2011, data from industry tracker HedgeFund Intelligence showed. By comparison, the United States had 216 such firms, and Britain had 65.
The milestone is keenly watched in the relatively small Asian hedge fund industry as a reflection of money managers' ability to attract institutional investors.
Taylor is one of the best-known hedge fund managers in Asia, given his past successes with Credit Suisse
Tall and lanky, Taylor is very soft spoken and constantly aware of his surroundings, his eyes darting back and forth between the trading floor and the two reporters during the interview.
Wearing a sharp navy suit, white shirt and no tie, he sat in front of a white board that had complex math equations scribbled around the entire surface.
Senrigan's 20-person office is now tucked into the corner of a general office floor in Hong Kong's Central district. The only sign showing the fund is housed there is pasted on a pillar behind the small reception area.
Throughout the hour-long interview, Taylor's focus kept coming back to China's outbound M&A ambitions.
China cross-border activity rose to $85.2 billion in 2011, a 5.7 percent jump from a year earlier, with outbound volume reaching $49.4 billion, according to data compiled by Thomson Reuters.
The Thomson Reuters/Freeman Consulting survey shows M&A in Asia-Pacific is expected to rise by 33 percent in 2012, compared with increases of 21 percent in Americas and 18 percent in Europe, Middle East and Africa.
Taylor, who has a degree in philosophy and social & political science from Cambridge University, launched the Senrigan Master Fund in November 2009 with about $150 million that included $100 million in seed capital from Blackstone.
The private equity firm invested a further $50 million into the fund, which quadrupled assets to more than $800 million in 2010 and has grown to manage about $1 billion now.
Taylor founded Senrigan after a 15-year career in event-driven investing in Europe and Asia. Most recently, he was a senior managing director of Citadel in Asia. Prior to that he spent nine years at Credit Suisse Group AG, where he co-founded Modal Capital Partners.
During his last three years at Credit Suisse, Taylor was also the head of Asia-Pacific proprietary trading. Prior to Credit Suisse, he worked on the risk arbitrage desk in London at Goldman Sachs
(Additional reporting by Vikram Subhedar; Editing by Chris Lewis, Jonathan Hopfner and Muralikumar Anantharaman)