Ex-Korea Sovereign Fund CIO Ong Plans Hedge Fund (Update1)
Guan Ong
Blue Rice Investment Management’s BRIM Asian Credit Fund, which will trade the region’s dollar-denominated debt, will target annual returns of 10 percent to 15 percent, Ong, 49, said in an interview yesterday. The fund aims to start with as much as $30 million, including Ong’s own money, in October or November, he said.
“The global credit market dislocations have provided an attractive entry point for investments into an Asian credit absolute return strategy, for at least the next three to five years,” said Singapore-based Ong, who drove the out-performance of Asian bond portfolios while at Prudential Financial Inc.
More than $1.6 trillion of losses and writedowns since credit markets froze following the collapse of the U.S. subprime housing market in 2007 have forced banks and global fund houses to reduce investments in Asia, fueling trading opportunities.
An index tracking Asia-focused fixed-income hedge funds gained 3.6 percent in the first seven months of the year, following a 10.6 percent decline in 2008, according to Eurekahedge Pte, a Singapore-based industry data provider.
The returns on Prudential’s Asian fixed-income fund in Singapore exceeded benchmark indexes by as much as 2.5 percentage points under Ong’s management from 2000 to 2004. Ong became chief investment officer of Prudential in Seoul in 2004, managing $12 billion in assets.
KIC
Ong left Korea Investment Corp., which managed $25 billion, in March after helping with the transition when his three-year term at the sovereign fund, known as KIC, ended in February. He joined as the fund’s first chief investment officer seven months after KIC was set up to invest part of South Korea’s foreign- exchange reserves overseas.
The fund invested $2 billion in Merrill Lynch & Co. in January 2008. After more than $50 billion of losses and writedowns tied to the collapse of the U.S. subprime mortgage market, Merrill agreed in September last year to be bought by Charlotte, North Carolina-based Bank of America Corp.
KIC lost a total of $4.46 billion since November 2006 on its investments, including the stake in Merrill, Yonhap News reported on Feb. 25, citing documents the sovereign wealth fund submitted to a lawmaker.
Sovereign Funds
Sovereign funds, mostly from Asia, made “substantial losses” on more than $60 billion invested in U.S., Swiss and U.K. banks since the start of the subprime crisis, the International Financial Services London, an industry lobby group, said in March. Temasek Holdings Pte, Singapore’s state investment firm, in the first quarter sold its 3.8 percent stake in Bank of America, which the fund got after the bank bought Merrill, at a loss that may have totaled $4.6 billion.
Blue Rice will use so-called absolute-return strategies that seek returns in rising and falling markets. It has developed an investment process that “will reflect the team’s deep and broad experience in managing significant asset pools,” said Ong, who has a PhD in electrical engineering from Imperial College in London.
Fixed-income markets are set to offer investors “the opportunity to benefit from equity-like returns for bond-like risks” amid concerns over the strength of the global economic recovery, he said. JPMorgan Chase & Co.’s Asia Credit Index returned almost 1.9 percent in August, beating the MSCI Asia Pacific Index’s 1.4 percent gain.
Rice Bowl
The fund will invest in investment grade and high-yield, or non-investment grade, bonds. It will also adopt “credit macro strategies” that are driven by industry fundamentals, he said. The fund won’t invest in defaulted bonds or the securities of bankrupt companies.
About 80 percent of the fund’s assets will be in bonds, including senior debt and credit-default swaps, while the remaining 20 percent will come under “secondary strategies,” including the use of equity indexes or stocks to hedge or go short, which involves selling borrowed securities with a view prices will drop and they can be bought back for a profit.
The fund’s leverage will be “modest” and won’t exceed twice the amount of investors’ money, he said.
The firm is initially targeting investors, including wealthy individuals, corporations, wealth managers, endowments and pension funds, seeking to allocate a portion of their money into fixed-income holdings, Ong said.
Blue Rice is named after a Malaysian rice dish known locally as “nasi kerabu.”
“Rice is an Asian staple and a very important part of Asia’s culture; you don’t break the rice bowl,” Malaysian-born Ong said. “We will use that philosophy in our investments here to take care of our investors’ assets, to protect the rice bowl.”
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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