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Absolute Capital Management launches real estate business with EUR100m fund acquisition

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Specialist European long/short equity manager Absolute Capital Management has launched a new alternative investment business with the establishment of a property investment division and th

Specialist European long/short equity manager Absolute Capital Management has launched a new alternative investment business with the establishment of a property investment division and the acquisition of a contract to manage a EUR100m listed real estate fund.

Absolute has acquired North Asset Management’s interest in the management contract of North Real Estate Opportunities Fund, an AIM-listed property investment and development company which has invested most of the EUR100m raised at its IPO last August in investments in Romania, Ukraine and Moldova.

Absolute will pay a total of EUR12.5m, while Magnus Lofgren and Robert Provine, North’s real estate investment principals, will join the firm’s newly-created property division Absolute Capital Management Property.

Absolute will receive a management fee of 2 per cent and a performance fee of 20 per cent payable on realisation of property investments as long as the fund achieves an annualised return of 10 per cent.

The Real Estate Opportunities Fund is a closed-ended investment company, incorporated in July last year in Guernsey and listed on London’s AIM market, that invests in the commercial property markets of countries of central and eastern Europe including Poland, the Czech Republic, Slovakia, Hungary, Romania, Bulgaria, Ukraine and Moldova.

The fund aims to provide investors with a high level of risk-adjusted total returns derived principally from rental income and capital appreciation from the acquisition, development and active asset management of its property investments.

Absolute believes it can provide the fund with significant additional value through its broad knowledge and experience in emerging markets, depth of financial expertise in the region’s banking and credit sectors, and its exposure to a range of direct real estate investments.

Since the company’s admission to AIM, it has substantially committed the capital raised in the flotation to investment and development projects, including retail and mixed-used developments in Romania and Moldova.

The fund has a further significant pipeline of identified acquisitions and developments, and Absolute plans to assist raise further capital to fund development transactions in the Ukraine and Romania. It also will seek shareholder approval to change the company’s name to Absolute Real Estate Opportunities Fund.

The contract acquisition is the springboard for Absolute’s property division, which will act as a platform for further growth and diversification in the sector, including the launch in the near term of a global long/short property fund. Provine and Lofgren will report to Andreas Rialas, Absolute’s co-chief investment officer and executive director.

‘We have clearly stated our desire to both manage permanent capital and to create a specialist property division,’ says Absolute chairman and chief executive Sean Ewing. ‘We are therefore very pleased to have made the first step in the creation of a significant real estate fund management capability.

‘The global real estate sector has undergone a period of expansion, and as we enter the next phase, our combined expertise should place us in a strong position to create value for the Real Estate Opportunities Fund’s shareholders. In addition, it is our intention to launch a long/short global property fund, the timing of which we believe to be opportune.’

Adds Provine: ‘We are delighted to be joining Absolute Capital Management Property. We believe Absolute’s expertise will significantly enhance our capability as an asset manager as well as enable us to play a more active role across our target markets.’

Provine, the co-founder and managing director for the management of the North Property Fund, was previously a director of a privately-owned private equity and property development group with retail, hotel and residential property investments of more than EUR1bn in the US, UK and central and eastern Europe, involved in all aspects of the business including originating, structuring and financing property transactions for the group.

Earlier he was a director of Consensus, a Rotch Property Group company with assets of more than EUR6bn, where he focused on the creation and implementation of structured financial products for owner-occupiers. This followed four years with Citibank in New York, where Provine worked on the mortgage-backed securities trading desk with a product focus on agency pass-throughs and collateralised mortgage obligations.

Between 2000 and 2006, Lofgren was responsible for European investments at Resolution Property, a private property investment company with equity of EUR332m, focusing on value-added property that offered scope for value enhancement through active management. At resolution he closed transactions with an asset value in excess of EUR700m and secured financing in excess of EUR1bn. He previously worked for Skanska Central Europe in Warsaw for three years, focusing on the development project financing and subsequent disposals of large-scale hotel and mixed-use office/retail schemes in Poland.

Launched in 2004, Absolute Capital Management is a specialist manager of absolute return funds investing in equities and fixed income, and has offices in the Cayman Islands, Switzerland, the UK, Singapore, Spain, Cyprus, Poland, Brazil and Argentina. Following completion of the deal with North the group will manage 12 funds and have more than USD3.25bn in assets under management.

Absolute has reported that the group’s strong financial performance last year has been maintained into the first half of 2007. The board expects trading for the first six months of the year to be ahead of expectations, with turnover of at least EUR58m and after-tax profit of around EUR30m. According to Ewing, the acquisition of Argo Capital Management in January has added significant product diversification and revenue from debt and finance opportunities in emerging markets.

‘We have increased assets under management by almost 100 per cent during the first six months of 2007 through significant organic growth and the successful integration of Argo. Demand from institutional investors for our expanding portfolio of alternative investment products remains strong, and we believe the creation of Absolute Capital Management Property is well-timed to take advantage of long/short opportunities in the global real estate market.’

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