Brummer Closes Asian Equity Hedge Fund After 15% Decline

Brummer & Partners, the largest Scandinavian hedge fund, closed its Asia-focused equity fund and the firm managing it after its performance damped returns, according to the Stockholm-based company’s annual report.

The Karakoram fund, which bet on rising and falling stock prices in Asia outside Japan, lost 15.4 percent last year, the worst performer in a global portfolio of the firm’s hedge funds, the annual report published on Feb. 15 shows. The fund, which started trading in July 2009, had assets of $234 million as of Dec. 31, according to the report seen by Bloomberg News.

“The year offered a demanding climate for the managers of the single-strategy funds due to hard-to-assess macro factors and relatively high levels of volatility in equity and fixed- income markets,” Brummer & Partners said in the report.

The tough trading and asset-raising environment led to about 100 Asian hedge fund closures in the 12 months through January, according to Singapore-based Eurekahedge Pte.

Singapore-based Artradis Fund Management Pte, whose hedge funds made $2.7 billion for investors as markets see-sawed in 2007 and 2008, is closing after it lost money from wagers on price swings in the last two years. Shafiq Karmali, a former Goldman Sachs Group Inc. trader, planned to shut Cypress Lane, a little more than a year after starting the Hong Kong-based hedge fund, three people briefed on the decision said in November.

Karakoram, managed by Ee Toh Chia in Singapore, contributed to an underperformance of Brummer & Partners’ multistrategy portfolio, according to the report. The portfolio gained 3.5 percent in 2010, below its targeted annual return of 8 percent to 10 percent and average annual return of 8.9 percent since inception, it said.

Low Probability

The HFRI Fund of Funds Composite Index returned 5.7 percent last year and the MSCI World Index gained 10 percent.

Chia and Anders Stendebakken, managing director of Brummer & Partners’ business in Asia, declined to comment.

Brummer & Partners intensified its analysis of Karakoram portfolio managers’ “risk and result components” after the summer, it said. The multistrategy fund’s board decided that the “probability of positive returns was so low that it was in the unit-holders’ interest to fully redeem the investment,” it said.

Karakoram had an allocation of 5.4 percent from the Brummer & Partners Multi-Strategy Fund on Dec. 1. Assets in the multistrategy fund increased to 29 billion kronor ($4.5 billion) at the end 2010, from 19 billion kronor at the start of the year, as it attracted net inflow of capital, according to the report.

Multistrategy Portfolio

The firm’s Arbor Market Neutral fund, in which the multistrategy fund had an underweight position, lost 9.7 percent, according to the report. Single-strategy funds Nektar and Lynx made the biggest contribution to the global portfolio, Brummer & Partners said. The multistrategy portfolio invests in hedge funds managed by companies in which Brummer & Partners is a shareholder.

“Overall 2010 thus proved a weak year, despite strong performances from some of the group’s funds,” it said.

The group’s assets under management grew more than 40 percent to 78 billion kronor, as the number of clients increased to 10,000 from 7,000, it said.

Brummer & Partners “seeks to identify new funds with the potential to improve the efficiency of the management” of the multistrategy portfolio, it said.

The fund invested as of Jan. 1 in an event-driven hedge fund that seeks to profit from events such as mergers in the Asia-Pacific region, according to the report.

The Stockholm firm teamed up with Scott Collison, a former portfolio manager at Millennium Management LLC’s Asian business, to start Orvent Asset Management Pte in Singapore to manage the fund, Brummer & Partners said.

Orvent started with an initial allocation of 3 percent from Brummer & Partners’ multistrategy fund, according to the report.

Brummer & Partners will team up with two new portfolio managers set up another event-driven hedge fund based in London, it said in the report. The fund, whose managers previously worked at the proprietary trading desk of “a leading investment bank,” is set to start trading in the second quarter, it said.

To contact the reporter on this story: Netty Ismail in Singapore nismail3@bloomberg.net

To contact the editor responsible for this story: Andreea Papuc at apapuc1@bloomberg.net

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