Hong Kong-based hedge fund manager Enhanced Investment Products, which manages a series of eight single-country index funds in Asia as well as the EIP Overlay Fund, a market neutral Asia ex-Japan hedge fund, is celebrating its fifth birthday.
The EIP Overlay Fund, which aims to achieve a 12 per cent annual return, has already surpassed its target and is currently up more than 15 per cent this year. Even when the market saw its toughest period in seven years, with most hedge funds in negative territory in August, the Overlay fund was up 0.54 per cent.
Believed to be the only fund of its type in Asia, the EIP Overlay Fund is able to trade in restricted markets through EIP's index funds covering emerging markets across Asia, as they are all housed within the same legal structure. In return for access to stock at no lending fee, the EIP Overlay Fund pays 25 per cent of its positive performance to the Index Funds.
Says EIP founder and chief executive Tobias Bland: 'Before founding EIP I worked on the proprietary trading desk at Jardine Fleming. There we had a lot of inventory to short in Asia and I saw that it was very lucrative to have your own captive borrow.
'Rather than making investors pay to buy the stock I decided to set up a model where we could attract inventory for the hedge fund with index funds. As it is still very difficult, expensive and cumbersome to borrow in developing markets, being part of the same protected cell structure allows us to get round those hurdles and in turn benefit both funds.'
Captive stock was initially made available through EIP's Enhanced Taiwan Index Fund. As a fund in its own right, its continued growth has outperformed its benchmark by 20 per cent since it was established five years ago.
Additional enhanced index funds were established in China and India in 2003, and in the second quarter of this year in Korea, Malaysia, Thailand, Indonesia and the Philippines. EIP can now offer investors 99.5 per cent exposure to MSCI Emerging Asia through its composite fund.
Appealing to institutional investors such as insurance companies and pension funds, the market neutral, multi-strategy, Asia (ex-Japan) Overlay Fund is ideal for investors looking for non-cyclical investment with low volatility.
EIP, which has Deutsche Bank as prime broker, Bank of New York as investment adviser and Citco Fund Services as administrator, has assets of SD270m under management in the index funds and USD13m in the EIP Overlay Fund. The minimum investment size is USD150,000 for the Overlay fund and USD1m for the index funds.