Orchard Capital bets on Asia capital market activity

Stuart Wilson, principal at Orchard Capital Partners, speaks during the Reuters Private Equity and Hedge Funds Summit in Hong Kong March 2, 2010.

HONG KONG (Reuters) - Orchard Capital Partners is betting on large initial public offerings and secondary placements and higher implied volatility in Asian markets in 2010, said a co-founder of the Hong Kong-based hedge fund manager.

"It is still an equity story. The IPOs and placement market is reasonably strong and there is enough uncertainty in the market to keep the pricing modest," Stuart Wilson, Principal with Orchard Capital Partners, told the Reuters Private Equity and Hedge Funds Summit.

Orchard was spun-off from Wisconsin-based Stark Investments in October 2009, with Wilson and his partner Teall Edds taking over the U.S. fund's Asian teams in Hong Kong and Singapore.

The company manages $400 million in equities, illiquid credit and multi-strategy funds and is a sub-advisor to assets worth $1 billion in Asia in funds run by Stark.

Orchard is also placing its bets on the China consumption story and thinks it's too soon to be betting against growth in China despite the strong equities rally in 2009.

"Being outright short Asia is very dangerous. We expect the U.S. consumer to continue spending and there is also a lot of inter-Asia consumption demand," Wilson told the Summit held at the Reuters office in Hong Kong.

Orchard Capital also sees opportunities in the illiquid credit market among the more creditworthy mid-cap companies where the pricing has stayed more or less consistent through the financial crisis and returns have held strong.

Wilson said the competition in the illiquid credit space has thinned out with investment banks and rival hedge funds less focused on the market following the liquidity crunch during the financial crisis.

Stark Investments, along with Bank of America's (BAC.N) Merrill Lynch and Och Ziff Capital (OZM.N), was a major investor in Asia Aluminum Holdings - a deal which left investors with less than a cent on a dollar after the near bankrupt company was sold back to its management team on a court order in 2009.

Orchard said it bases its investments decisions on the strength of its relationship with the senior management of targeted companies.

"We have a firm but fair approach, most of the time it works," said Wilson.

"We are not trying to be heroes, we are trying to preserve capital," he said.

(Reporting by Parvathy Ullatil; Editing by Muralikumar Anantharaman)