LIM raising cash for Asia commodity fund

HONG KONG (Reuters) - Hedge fund manager LIM Advisors is looking to raise almost $200 million this year for its existing small Asia commodities fund, betting the recent pullback in the asset class has not diminished long-term investor appetite.

The $1.5 billion Hong Kong-based hedge fund manager feels ready to ramp up the fund size from its current $26 million after building up a three-year track record, said Chairman and Chief Investment Officer George Long.

"Longer term, what the U.S. is doing now, bailing out the mortgage sector, deficit spending, is potentially highly inflationary. So we could have a situation where we have U.S. stagnation, but pretty rampant inflation globally," he said in an interview as part of the Reuters Hedge Funds and Private Equity Summit in Hong Kong.

"It's sort of a dollar hedge frankly. That's actually one reason why oil and gold have been strong."

After a multi-year bull run, commodities were caught up by this year's market turbulence, with Reuters-Jefferies CRB index .CRB down more than 5 percent from the record high set last month.

Long, who set up LIM Advisors in 1995, said that despite the pullback, the long-term case for commodities remains positive given shortages and the stimulative effect of falling U.S. interest rates on many Asian economies.

Launched in January 2005, the LIM Asia Commodities Fund lost 11.67 percent in its first year, before rising 17.3 percent in 2006 and 37.11 percent in 2007. It fell 2 percent in the first two months of this year.

The fund's management team includes David Kaplan and Sam Zhang, former employees of closely-held commodities trading giant Glencore.

Long said a competitive edge for the fund is the research LIM does in China and elsewhere in Asia for investments in its other major hedge funds, including its flagship LIM Asia Arbitrage Fund, which managed $893 million at the end of February.

The commodities fund has largely focused on energy and metal plays, split between shares of commodity-related companies and commodity futures and options. Agriculture plays, such as palm oil, have been fairly small.

"Equities peaked about a year and a half ago at something like 80 percent and now the balance is starting to shift more towards commodities, because we see less value in the equity markets," Long said.

Separately, Long and LIM executive director Dean Van Drasek said the firm would look to take on more cash later this year for its recently launched Asia special situations fund, which invests in less-liquid credit-oriented instruments and transactions.

The fund has about $230 million in paid-in and committed capital. LIM had hoped to launch the fund with $500 million before the market volatility of the first quarter hit. Van Drasek said much of the fund is still in cash.

"We have taken a slower approach than we initially expected to in terms of investing that, simply because of the turmoil in the markets and the fact we expect to see some more exciting opportunities available in the secondary markets," he said.

"You're just waiting for somebody to get a margin call, or somebody to get redemptions, and then they become a forced seller and that drives the price down. So why pick it up now if you think that there are these players with weak hands?"

Van Drasek said the credit crunch was ultimately positive for the fund, as it both increased potential investment opportunities and reduced competition from players like the proprietary trading desks of investment banks.

"A lot of deals that would have been done on the public side are now coming to us because they can't get done on the public side. And the terms that we could get are better," he said.

(For a summit blog: summitnotebook.reuters.com/)

(Reporting by Jeffrey Hodgson; editing by Kim Coghill)