Copenhagen, Denmark-based Danfonds is readying its first hedge fund, Frontier Market Fund, for launch later this year with more than €25 million (US$39 million). The firm will cap the fund at €200 million (US$315 million) and is in talks with potential seed investors.
The Frontier fund, which will debut after September, will look for long positions in the frontier markets of sub-Saharan Africa, central Asia and the Caucasus, the Balkans, the Baltics and the Middle East. Its shorts and hedges will be confined to index-products in developed markets of South Africa, Turkey, Russia and Brazil.
“Shorting is a little bit difficult in frontier markets, but we’ll do contracts for differences on currencies and futures indices-type investments in emerging markets,” said CEO Daniel Broby.
Risk director Klaus Jeppesen said frontier markets are “quite interesting because, in themselves, they’re quite volatile, but if you take a combination of all of them you’re actually getting a standard deviation lower than global equities. Right now, they look attractive for big institutional investors looking for alternative asset classes that don’t correlate with what they already have.”
According to data from EPFR Global, which tracks fund flows and allocations globally, net inflows from foreign investors into African regional equity funds totaled $650 million in 2007, up from about $100 million the year before. And inflows into Middle East regional equity funds were $402 million last year against outflows of $130 million in 2006.
The Frontier fund will charge a 1.5% management and 18% performance over a 5% hurdle rate and a €100,000 minimum investment requirement.