LHC Capital Pty, a Sydney-based hedge-fund manager, is seeking money from family offices to double its size after returning 33 percent this year, making it the best performer in Australia among funds with more than A$50 million ($47 million).
LHC’s Australian High Conviction Fund, which manages A$100 million, invests in as many as 15 Australian and New Zealand companies with a market value of less than A$1 billion. It has gained from bets on health-food maker Freedom Foods Group Ltd. (FNP) and specialist drugs developer Mayne Pharma Group Ltd. (MYX), said Chief Investment Officer Stephen Aboud.
Aboud, who said friends have nicknamed him “the Sheik” due to his interest in racehorses, expects family offices will be drawn by the market-beating run LHC has had since inception in May 2011. LHC’s strategy has a capacity of as much as A$250 million, said Aboud, who previously managed the trading portfolio of billionaire Frank Lowy’s family following a three-year stint as a trader at Deutsche Bank AG.
“It is hard to raise money unless you have good performance upfront,” Aboud said in an interview in Sydney yesterday. “We have had a very good year and it’s our opportunity to grow it. We are out looking for family offices that may put A$5 million to A$10 million.”
The fund has returned 33 percent in the nine months to Sept. 30, the highest among the 17 hedge funds in Australia with assets of more than A$50 million, according to data compiled by Bloomberg. The fund has returned 69 percent since inception, according to its monthly report. The benchmark S&P/ASX 200 (AS51) Index has climbed 16 percent this year and 11 percent since May 2011.
About half the money managed by Aboud comes from the Salteri family, which sold its Tenix Defence business to BAE Systems Plc (BA/) for A$775 million in 2008. Tenix Defence included aerospace, defense-electronics, military-vehicle and marine units.
After starting LHC on his own, Aboud was joined by Marcus Hughes as a principal and fund manager. Hughes previously worked at Caledonia Private Investments Pty and UBS AG. The two together have A$5 million of their own money in the fund, Aboud said.
LHC, which charges 1.5 percent per annum in management fees and performance fees of 20 percent on returns that exceed the Reserve Bank of Australia’s cash rate, now holds 30 percent of its assets in cash, he said.
Its holding in Mayne Pharma, whose shares almost tripled this year, represents 14 percent of the fund’s assets while its holding in Freedom Foods, which has a stake in milk producer A2 Corp Ltd. and owns So Natural and Australia’s Own Organic brand, accounts for 5 percent. The holding in Freedom Foods, whose shares have almost quadrupled this year, was as high as 20 percent.
LHC holds short positions in taxi-fare processing firm Cabcharge Australia Ltd. (CAB), whose shares are down 13 percent this year, and food-distributor Metcash Ltd. (MTS), which has fallen 1.5 percent, as both face increased competition, according to Aboud. It is also shorting mining services companies, which have weakened as the country’s resources investment boom fades, he said.
Shorting involves selling borrowed shares and making a profit buying them back when prices decline.
“Most companies we look at don’t have broker coverage, definitely not the bold broker coverage of UBS, Macquarie, Goldmans of the world, which we love,” Aboud said. “The cheerleaders can come later.”
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