January 25, 2011 / 6:33 AM / 8 years ago

UPDATE 2-S'pore hedge firm Artradis to close, founder to start new funds

 * Main funds suffered double-digit losses in 2009 and 2010	
 * Co-founder says long volatility mandate an Achilles' heel	
 * Stephen Diggle plans to set up new funds	
 By Kevin Lim and Nishant Kumar	
 SINGAPORE/HONG KONG, Jan 25 (Reuters) - Artradis, once
Singapore's biggest hedge fund firm with assets of about $4.5
billion, plans to wind down operations and return money to
investors, in one of Asia's most high-profile fund closures.	
 "In the last two years, we have been losing money and that
is why we are closing," co-founder Stephen Diggle told Reuters
on Tuesday.	
 "The fact that we had a specific long volatility mandate was
why the firm grew so large. But in the last two years, it has
been an Achilles' heel," he added.	
 Diggle plans to turn his family office into an asset
management firm and take over Artradis' money-making Russian
Opportunities fund, as well as a second fund called Testudo that
invests the partners' money.	
 Artradis was founded in 2001 by Diggle and Richard Magides
who were former colleagues at Barings Bank in Singapore.	
 It set up its first fund in May 2002 to bet on fluctuations
in Asian markets and made a fortune during the financial crisis
when stock and bond prices plunged.	
 Its two main funds -- Artradis AB2 Fund and Artradis
Barracuda -- had "long volatility" mandates, which meant they
offered investors a good hedge against falling asset prices.	
 According to data from Thomson Reuters Lipper, Artradis' two
main volatility funds posted double-digit losses in 2010 and
2009 as financial markets rallied.	
 The AB2 Fund was down 23 percent in 2010 and 27.5 percent in
2009, while the Barracuda fund lost 17 percent in 2010 and
nearly 14 percent in 2009.	
 Dibble said Artradis currently manages around $500 million,
down from its peak of about $4.5 billion at the end of 2008, as
it had been returning money to investors.	
 Hedge funds investing in Asia have lagged the recovery in
the global industry, attracting new money from investors only
from the second half of 2010, industry players have said.
 According to industry fund tracker Eurekahedge, more than 50
Asia-focused funds wound up last year.	
 The biggest hedge fund closures include Basis Yield Alpha
Fund, run by the Australian firm Basis Capital, that managed
about $1 billion. 	
 The hedge fund that specialized in corporate and structured
credit filed for bankruptcy protection in the United States amid
mounting losses from U.S. subprime mortgage assets in 2007.	
 More recent closures in the region includes Minerva, founded
by the former head of Fortress Investment Group's Hong
Kong office Stanley Ku, and Hong Kong-based Cypress Lane,
started by former Goldman Sachs trader Shafiq Karmali.	
 DragonBack, set up in 2007 by Robert Lance, a former Hong
Kong-based co-head of equities at Lehman Brothers, Matt Barnett
and Philip Tye, also shut its hedge funds last year.	
 Sumitomo Trust Finance (H.K.) Ltd, the asset management arm
of Japan's Sumitomo Trust & Banking Co , liquidated its
Tactical Equity Concepts Japan hedge fund in December, according
to a document obtained by Reuters. 	
 Industry players said Artradis' poor performance stemmed
from its mandate to buy volatility, which has fallen amid a
rally in stocks and bonds since early 2009.	
 Western central banks' efforts to stabilise financial
markets by buying bonds and injecting billions of dollars into
the system also reduced opportunities for volatility traders.	
 Christophe Delorme, a director of RSR Capital which manages
the Caerus Arbitrage Asia fund, said that while it was possible
for volatility funds to make money in all conditions,
super-sized returns were possible only in times of stress.	
 The Caerus fund, which is not required to be long
volatility, returned 6.5 percent between mid-August and
 Looking ahead, Dibble plans to remain in the industry by
turning his family office into a fund manager and taking over
two existing Artradis funds -- a Russian fund and an in-house
fund that managed money for the partners if investors agreed.	
 He also intended to set up a fund that trades volatility and
 a second fund to invest in farms.	
 Dibble said his family office had been acquiring farms over
the past two years, and he plans to inject the farms into a fund
as many investors have expressed interest in buying farmland
amid soaring food prices.	
 "What we need to remember is that these managers are very
smart, enterprising and have a deep understanding of the fickle
markets of Asia, and we will quite likely see them make a
comeback in some form or the other," said Aradhna Dayal, editor
of hedge fund portal AsiaHedge in Hong Kong.	
 (Editing by Muralikumar Anantharaman)	
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