Best Long/Short Equity Hedge Fund: Shortlisted

Best Emerging Markets Hedge Fund: Shortlisted

Launched in October 2004 and listed on the Irish stock exchange, the Veritas Real Return Asian Fund looks to generate between 15%-20% a year. It aims to do this with half the market volatility, around 11%, over a three-year time horizon.

Within the long/short equity investment strategy, fund manager Ezra Sun uses specific macro themes to drive a bottom-up stock picking process in particular themes. The strategy is split roughly half and half between these approaches and focuses on large cap companies.

Sun says: "In analysing companies we are focusing on the business model, the quality of management - or the lack of quality - and the sustainability of the business. We pay particular attention to free cash flows."

With an eye on volatility the portfolio is divided between a core portfolio, consisting of companies that have sustainable and predictable growth and the trading portfolio which is short term in nature (up to six months). The core part of the portfolio is used to provide steady returns over the longer term (3-5 years) while the trading portfolio seeks to capitalise on market inefficiencies and earnings momentum.

"We can deliver absolute returns by adopting a thematic approach to Asia and by focusing on dividend yield and earnings momentum," notes Sun. "We invest in a core portfolio of high dividend yielding stocks together with a trading portfolio which consists of earnings driven shorter-term opportunistic positions. Dividend yield is very much over-looked in Asia," he adds.

On volatility Sun says while the target is "reasonably low volatility of around 11%, which is roughly half that of the market", the fund's investment horizon is long term. He is prepared to tolerate short-term volatility which is prevalent in the Asian markets.

Market risk is hedged in the fund by using exchange traded index futures and options with foreign currency hedging achieved via the use of currency forwards.

The fund's strategy sees long positions held through a combination of direct investment and/or derivative instruments and short positions through derivative positions, primarily equity swaps and futures.

The use of derivatives forms an important part of the investment strategy, with Sun able to use derivatives under certain circumstances to aid capital preservation.

Just over a third of investors into the fund are fund of hedge funds, with private clients taking another third followed by family offices and pension funds and private banks making up around 3%.

Sun is fund manager and head of Far East for the company. He also runs the Veritas Asian Fund (long only) and the Veritas China Fund (long/short).  Along with the other members of the investment team, including Raymond Foo, Jaewon Bae and Victor Chu, the fund can call upon the substantial experience of the team which also has a long-term track record of performing well against Asian equity indices.

Veritas Asset Management is 100% owned by its employees.

Fund Facts: The Real Return Asian Fund

Full name of fund: The Real Return Asian Fund
Name of portfolio manager: Ezra Sun
Name of investment/management company: Veritas Asset Management
Contact: Farouk Abillama, 39 York Road, London SE1 7NQ (+44 (0)20 7961 1445; fabillama@veritas-asset.com)
Launch date: 2004
Portfolio size: $626 million (at April 1, 2010)
Average annualised return: 17.1% (at March 31, 2010)
Average annualised volatility: 10.9%(at March 31, 2010)
Sharpe ratio: 1.3
Strategy: pan-Asian long/short equities
Share classes: US dollar, sterling and euro
Administrator: PNC Global Investment Servicing
Auditor: PriceWaterhouseCoopers
Custodian: PNC International Bank
Prime broker: UBS, Deutsche Bank
Domicile: Ireland
Listing: Irish Stock Exchange
Management fee: 1.5%
Performance fee: 20% with high watermark
Minimum investment: €125,000 or equivalent
Lock in: none
Redemption period: monthly with 30 days' notice