New York Firm Preps Latin American 120/20 Fund

Feb 5 2008 | 1:35am ET

New York-based Pergamene Capital this month is launching a long/short equity hedge fund focusing on the Latin American region. The Pergamene Latin American Fund will employ a long-biased strategy in a 120/20 structure.

The new offering will focus on high-growth sectors, especially in mid-cap names, and limit its holdings in low-growth sectors and mega-cap stocks. The portfolio will be long approximately 120% (20-35 names) and short about 20% (five to eight positions). In addition, the fund will limit its exposure to the more liquid Mexican and Brazilian markets by a total of 50%, and it will not invest in Venezuela.

“[Venezuela’s] got pretty ferocious capital controls,” said Christopher Ecclestone, portfolio manager of the new fund. “We’re not as freaked out about it as most people, but there’s not much to do there. We have a balanced outlook for Latin America and we don’t feel it’s dominated by Brazil.”

“One of the larger economies that we’re least bullish about is Mexico, because if there’s a contagion from the U.S. economy, it’s going to be felt in Mexico whereas many of the other countries such as Argentina and Chile all have the commodity super-cycle in their favor and Mexico really doesn’t.”

Ecclestone said Pergamene is employing a 120/20 strategy because of the dearth of short ideas in the region, and the firm is avoiding mega-cap stocks because of their fly-by-night nature rather than strong fundamentals.

“There are a handful of megacaps in Latin America where you’re not exposed to Latin American risks. What you’re exposed to is big yen-carry trade money that washes in and out in a span of days and has nothing to do with the fundamentals in the region.”

The new hedge fund is expected to launch with some $5 million and is aiming to raise its assets under management to $40 million in the next three to six months. It charges a 2% management fee and a 20% incentive fee with a $100,000 minimum investment requirement.

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