Evergreen Capital Plans Global REIT, Infrastructure Hedge Fund

Evergreen Capital Partners Ltd., which returned 36 percent in its Australian real estate and infrastructure fund in the year to April, plans a hedge fund to invest in the assets globally amid demand for higher yields.

The Australian asset manager aims to start the Global REIT and Infrastructure Absolute Return Fund on July 1 with more than A$10 million ($9.6 million) and hopes to manage A$50 million within 12 months, the fund’s managers, Andrew Smith and Jonathan Collett, said in a telephone interview on June 14. They will cap the fund at A$500 million.

Australian investors are searching for higher-yielding assets with the central bank lowering the benchmark interest rate to a record-low 2.75 percent and a slowing economy hurting equity valuations. Evergreen, based in Melbourne, expects the strategy to achieve a return of 10 percent to 15 percent.

“The risk profile is somewhere between equities and cash; cash being zero volatility and the equity market between 15 to 20 percent,” Collett, a former Goldman Sachs Group Inc. equity analyst, said. “The fund is focused on capital preservation and a targeted return of 10-15 percent.”

The new fund’s benchmark or reference is the Australian three-year bond rate plus 2 percent, they said.

Evergreen, which manages A$200 million through its long-short Australian Equities Return Fund and the long-only AREIT and Infrastructure Fund, plans a long-short model for the new fund where a long position in a certain stock is balanced by a short position in a peer. It will invest in REIT and infrastructure securities globally that provide exposure to airports, toll roads, ports, rail, shopping centers, office assets and industrial estates.

Exploiting Mispricings

“It is largely about exploiting individual stock mispricings, not taking big bets on the sectors,” Smith said. “With pretty much all of our trades, we’ll be long and short within the same market, currency and asset class.”

Evergreen’s long-only AREIT fund, which held stocks including Dexus Property Group, GPT Group and APA Group, has returned 24 percent since inception in May 2010, according to an April investment report for the fund. Its Australian Equities Return Fund has lost 18 percent so far this year with short positions including in retail stocks and long positions including in energy shares.

The benchmark S&P/ASX 200 stock index has climbed 2.2 percent this year. The Australian economy expanded 2.5 percent, the slowest annual pace in almost two years, as manufacturers and builders detracted from growth, pushing traders to price in further rate cuts. Swap traders are pricing in a 80 percent chance of another interest-rate cut by end of the year.

Sophisticated Investors

Evergreen’s new fund is aimed at “sophisticated” investors, including family offices and broking firms’ private wealth networks, with the response so far “positive,” Smith said.

Minimum investment in the fund is A$50,000 with a management fee of 1.5 percent a year of the net asset value at the end of the month, according to the fund’s information memorandum. Investment restrictions mean not more than 15 percent of the value of the fund can be in securities of any one entity.

Treasury Group Ltd., which owns shares in a number of funds managers, said in May 2012 it had purchased a 30 percent stake in Evergreen Capital Partners for an initial A$1.4 million plus a further amount that is dependent on Evergreen meeting certain performance targets before June 2014.

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