New hedge fund bets pounds 90m on recovery

FABIEN PICTET, a member of the Swiss private banking dynasty, is planning to set up a $150m (pounds 90m) emerging markets hedge fund in London next month.

Mr Pictet, who today begins marketing to wealthy individuals and sophisticated investors in the UK, Europe and North America with $1m or more to spare, plans to exploit the emerging markets dislocation to get into markets in Asia and eastern Europe while prices are still low. Mr Pictet says he has put two-thirds of his own net worth into the fund.

By adopting a hedge fund strategy and taking arbitrage and short positions in these markets, he hopes to turn the volatility which has wiped out conventional investors in these markets to the fund's advantage. "We are aiming to deliver 25 per cent returns with the kind of volatility normally associated with government bonds," he said.

Those returns will not come cheap: the firm will take a cut of 20 per cent of annual profits on top of a 1.75 per cent management fee.

Mr Pictet said London had been chosen as an operational base rather than Geneva or New York because of the depth of emerging market talent there. The firm consists of 12 people, of whom eight are partners. It includes Jonathan Neill, formerly of Mercury Asset Management, and Albert Saporta from AIM&R, one of the biggest UK-based hedge funds.

The fund has had approvals from both the UK's Investment Management Regulatory Organisation and the Dublin stock exchange. "The Imro stamp is a very good one," said Mr Pictet.

He said bombed-out markets such as Korea and Thailand were already showing flickers of life. "The fact that so many funds have pulled back creates opportunity."

Mr Pictet cites holding companies in countries such as Turkey and Israel, whose discount to the value of quoted operating subsidiaries has widened from an average of 20 per cent to 40 per cent, as anomalies to exploit.

There has been a similar dramatic widening in discounts in emerging market investment trusts.

"The Korean won is up 25 per cent against the dollar since August, so capital must be going back in," he said, adding that the recoveries, when they come, will be very sharp.