INTERVIEW: Extracting Real Value At Duet Group's Asia Fund

Tom Burroughes

10 April 2017

Making money via hedge funds has become a tough task these days because of strategy crowding and headwinds caused by low, or even negative, interest rates. The glory days of stellar returns that got managers’ faces on magazine front pages have faded.

Managers at the Duet Brasidas Asia Event Fund are in confident mood, however. They reckon this fund’s strategy of targeting corporate events such as takeovers and management changes, seeking to find mis-pricings and profit from them, can earn steady if not spectacular returns to cheer investors. In Japan, for example, reforms to how companies are owned creates rich M&A opportunities in that country, while there remain plenty of opportunities in China and other parts of the Asia region, managers told Family Wealth Report in a recent interview.

At the end of last year ; a deal closing in three months with a 12 per cent return at no or low risk is ok,” he said, illustrating his methodology. About 30 per cent of the portfolio comprises stakes in announced M&A deals, he continued. “We look at each situation independently and take a systematic approach to hedging exposure,” he said.

Large, macro themes do form part of the analysis that goes on, he said, giving examples of Japanese changes to corporate governance and the subsequent perceived boost to M&A and restructuring, or changes in valuations to the Chinese renminbi.

Being an event-driven fund, clearly one major focus will be on those M&A deals in Asia, and given the strategy, it is as important to spot signs early of when a deal might be going sour as when they may go ahead. Withaar cited the case of West China Cement, where its slated acquisition by Anhui Conch Cement collapsed after a tumble in the former’s share price. There were some warning signs that the deal had got stuck, he said, and that is the sort of intelligence that the fund aims to have, he said.

Boots on the ground
Smythe said the strategy of the fund meant managers had to be out on the ground regularly.

“You have to really understand a company’s assets to do the hedge…it is a deep-diver strategy,” he said. Given a variety of risks and issues, such as family ownership structures and legal tangles, there are no clever shortcuts, Smyth said. “Machines can’t deal with this,” he said.

Duet Group manages hedge funds, long only funds, private equity and real estate, employing 77 people in London, where it is headquartered, New York, and Dubai.