Absolute manager zeroes in on NZ

The newest fund manager in town is Australian organisation PM Capital that is headed by some former Bankers Trust staff.

PM Capital is offering three funds to New Zealand investors, including an international fund with an absolute return focus, an enhanced yield fund and an Australian only fund.

PM Capital was set up in 1998 by ex BT people Paul Moore and Peter Fahy.

Fahy was in New Zealand recently to launch the three funds to local investors. He says although the funds are Australian domiciled vehicles they are tax effective for New Zealand investors.

Fahy says the international fund is somewhat unique because of its absolute return focus (ie: it is always meant to have positive returns and pays little attention to market indices).

While the fund had positive returns in 2001, year-to-date it is down 25% (or "dead in line with the market").

Fahy says there's a bit of misunderstanding on what absolute return funds are.

"There is a wide range of absolute return funds and they have different strategies. A lot of funds are aiming for absolute returns every year and some of them are looking for absolute returns every single month."

He says getting positive returns over short time periods is achievable, but these sorts of funds have to be run so conservatively that they are not going to "get the up years". He reckons that funds that aim for absolute returns every month are "never going to get more than 10% unless you have really high interest rates."

"Our objective is a 15% compound per annum return on rolling three year basis," he says. "We are not guaranteeing positive returns every period."

Fahy is concerned with how some absolute managers are operating at present: " The problem with a lot of absolute return promoters at the moment is that they've burnt their clients with their index style funds so they have gone the other way and offering this hope of no capital risk but they are still trying to lure them in with double digit type return expectations.

"I think that is quite dangerous."

Fahy says one of the other big selling points of the PM funds are that the managers are the biggest investors in them and they are rewarded on performance rather than a percentage of funds under management.

The closest competitor to PM Capital is the Platinum funds that are run by another former BT staffer, Kerr Neilson. Fahy says although the two firms take a similar approach to investing they are quite complimentary as PM Capital is more focused towards the United States market, while Platinum tends to take bigger positions in Japan, Europe and emerging markets.

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