Threadneedle Adds Seventh Hedge Fund; Smaller Cos. Fund Up Over 42%

Jan 11 2007 | 9:42am ET

UK-based Threadneedle Investments last week launched its seventh hedge fund, the European Smaller Companies Crescendo Fund, which is a long/short vehicle portfolio focusing on European small-cap stocks, with $13 million in initial equity.

The fund aims to produce double-digit annualized returns by exploiting the inefficiencies of the European smaller-cap market, with particular focus on a company’s purchasing power, according to the firm. It will seek to capitalize on the volatility of smaller companies, the convergence of European markets and the increasing appetite for leverage.

Dave Dudding, a European equity fund manager who joined Threadneedle in 1999, will manage the new hedge fund and will be assisted by Philip Dicken, who manages the Threadneedle Pan European Smaller Companies Fund.

“The European small-cap market is young and inefficient, throwing up many opportunities for long and short strategies,” said Dudding. “As the widely varied European states continue to converge into a single euro zone, the political and corporate cultural differences remain vast and exploitable. One key investment theme to watch in 2007 is the resurgence of the IPO market with many smaller companies returning to bond and stock markets to raise cash.

“We can expect this trend to play out for at least the next 10 years because the number of markets continues to grow, not shrink and this makes our stock-picking universe less efficient, not more,” he said.

The fund charges fees of 2/20 with a minimum investment requirement of £200,000, $250,000 or euros 250,000.

Small Company Fund Up 42.5% In First Year

In other firm news, the Threadneedle Pan European Smaller Companies Fund ended its first year of performance up 42.5 %. The fund was launched in November 2005 and is currently managing some £27.6 million (US$53.7 million).

“Smaller companies, particularly in continental Europe, are under-researched and therefore conceal value,” said Dicken, who manages the fund. “Thanks to a well-resourced team and a commitment to go out into the market and meet as many as 700 company managements each year, we have been able to unlock a good deal of that potential.”

Going forward, Dickens is bullish on the fund’s potential returns. “As the European economy approaches its late cycle phase, many growth stocks are still trading on unjustifiably low valuations. The small cap arena is well stocked with attractively priced companies with excellent growth potential. I’m looking forward to unearthing many more opportunities in 2007,” he said.

Threadneedle was founded in 1994 and manages more than £70.7 billion (US$132.1 billion) in assets for a wide range of clients including pension schemes, insurance companies, private investors, corporations, mutual funds and affiliate group companies.

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