Best Energy or Commodities Hedge Fund: Shortlisted

Investors looking to subscribe to the Halcyon Power Investment Company are going to have to wait, as the next date on which the fund will be open for subscriptions is July 1, 2011. The fund  returned a stunning 140% net of fees in 2009.

Investors are locked in for five years with redemptions occurring in five year cycles although the shares of the Halcyon Power Investment Company are tradable on the secondary market.

The closed-end investment vehicle has an investment objective to achieve substantial long-term capital appreciation from investments in companies engaged in electricity generation, transmission, distribution and related businesses in Russia or the countries of the former Soviet Union.

The fund is one of the stable from the Specialised Research and Investment Group (SPRING), also known as Halcyon Advisors. The dominating principle of the group's fund strategies is that superior returns on capital are best achieved by investing in the source, or spring, from which future value is created. That source on which the global economy depends includes the energy, mining, and agriculture sectors.

While innovation and technology may determine the process, speed and form of value creation, no value can be created without the core resources of fuel, electricity, minerals and food, according to Halcyon Advisors.

The focus for Halcyon Advisors has been the Russia power sector. This sector is currently under reform and since the $50 billion market-cap centralised utility Unified Energy Systems (UES) was liquidated in July of 2008, some 200 companies have sprung up in its place offering substantial opportunities for fund manager David Herne and his team of six specialised analysts.

These companies have an enormous discount to international peers. Generation companies are traded at a 90% discount to international peers and distribution companies at a 67% discount.

The media and the market have been very negative on the sector but throughout the 2009 financial crisis, the profit margins were growing and many companies are seeing profitability for the first time.

While the sector is complicated it offers tremendous opportunities.

The fund targets a return of 10%. To the end of February 2010 it had achieved an annualised rate of return since inception of around 34.15%. Its cumulative return since inception in February 2004 is 527.15%.

The investment approach of Herne and his team draws on initial analysis undertaken through company meetings and broker research Key attributes of the company, such as the price to earning ratio, are added to result in detailed investment reports and an analyst recommendation. This establishes a core universe of stocks which is under constant review.

Given the nature of the market, the work that goes into assessment of the companies is extremely detailed. It is essential the fund meets with company management.

Halcyon Advisors became Specialised Research and Investment Group in 2008 in a move designed to take advantage of the specialist knowledge of the group to expand from Russian electricity-related investment strategies into other resource sectors.

The group now has over 18 investment professionals in Moscow, London and the Cayman Islands. It has five current fund offerings in energy, infrastructure and mining, with around $500 million in assets under management.

SPRING says it intends launching an agriculture fund in 2010.

Fund facts: Halcyon Power Investment Company

Full name of fund: Halcyon Power Investment Company
Name of portfolio manager: David Herne
Name of investment/management company: Halcyon Advisors
Contact information: Halcyon Advisors Inc, Ground Floor Harbour Centre, PO. Box 1569 George Town, Grand Cayman KY1 - 1110, Cayman Islands (+7 495 783 6780; ir@halcyonn.com)
Launch date: 2004
Assets under management: $220 million (at April 30, 2010)
Net cumulative performance since inception: 527.15% (at March 31, 2010)
Annualised return: 34.15% (at March 31, 2010)
Annualised volatility: 34.53% (at March 31,, 2010)
Sharpe ratio: 0.78
Strategy: long biased equities of utilities in Eastern Europe
Share classes: US dollar
Administrator: CIBC Bank and Trust Company
Auditor: BDO
Custodian: UBS
Prime broker: Citigroup
Domicile: Cayman Islands
Listing: Irish Stock Exchange
Management fee: 2.5%
Performance fee: 20%, with 10% hurdle
Minimum investment: $500,000
Lock-in: five years
Redemption/liquidity terms: 5 years with 3 month notice