Mellon finds local investor for Oz long short fund

Mellon Capital Management has found its first Australian investor for its 200/100 long short Australian equity quantitative fund with Australian Wealth Management’s United Funds Management allocating $50 million to the capability.

Another institutional investor is about to sign on for a $30 million mandate. James Gruver, Mellon Global Investments Australia managing director, said the fund has also had to turn down a number of larger investors due to capacity constraints. Warren Chiang, managing director active equity strategies and manager for the fund, said capacity will be capped at $400 to $500 million and the fund wants more than one or two very large investors, “We really wanted to get it right and we didn’t want to be the last man in,” Gruver said. The fund has been running since September 30, 2006 after a US-based private investor seeded it with close to $20 million. It will target an information ratio of more than one and charges 1 per cent plus 20bp of outperformance. It will also leave aside some capacity for Mellon Capital’s global long/short fund which will be launched in June. That fund will include a variety of Mellon Capital’s long/short strategies from around the world. Chiang was considering hiring at least one Australian-based analyst late last year but by limiting the fund’s universe to the ASX/S&P 100 – where information and liquidity is readily available, decided that there was no need to have anyone on the ground and the fund will be run out of the US office in San Francisco. As the top 100 stocks are also quite liquid offshore the manager has been able to source as much as 99 per cent of the short side in the US. “If you borrow from US investors you don’t owe franking credits,” Chiang said.