The fund declined -1.3%, leaving us down -14% for the year. Regional market indices fell in excess of -8%.
We should have made a fortune in October and this result is hugely disappointing. Why I neglected Korea, which would have paid by far the most substantial dividends, is hard in retrospect to justify; Singapore was a poor proxy for regional weakness. We were nonetheless +2% to the good most of the month, despite sharp weakness in our small long book (-5.88%), before seeing those returns slide in the last 48 hours as the short book (+3.93%) gave back some of its earlier strength, and currency gains in AUD (and especially JPY) moved against us. FX contributed +44bps and futures +20bps. Our positions in Reliance (weaker on Trump’s decision to oppose the IMO 2020 sulphur restrictions), SBI Holdings in Japan (-20%), and Pengana Capital in Australia were our most significant losers, while MMG and Melco, two names we re-entered prematurely in what I now think was a vain attempt to position the fund for some rally in risk, also detracted. Prada, Sun Hung Kai Properties and Sands China led our gains on the short side.
The Tantallon India Fund closed down -2.31% in October, after expenses, with the rupee depreciating 2% versus the US$. Given the extent of the sell-off in global equities over the course of the month, it did feel like a small victory to see the portfolio recover strongly into month-end on the back of our portfolio holdings starting to report strong September quarter earnings, well ahead of consensus expectations. Fundamentals are starting to re-assert themselves, and the sell-off in crude has certainly helped buoy local investor sentiment.
October saw the biggest tech sell-off for the year, with the sector globally falling as much as 15% before bouncing back on the last day of the month. This drop not only outpaced the 12% and 11% drops in Jan-Feb and March, respectively, but also looks to coincide with peak earnings and therefore signals the start of a more substantial correction that could last at least several quarters. On average, the funds’ 14 holdings lost 14% during October but some fortunate selling of some of our holdings such as AMD and NVDA near their peaks limited the damage somewhat to a loss of 10.8%. The disappointing result highlighted that none of our holdings are immune to negative liquidity flows and multiple compression and forces us to anticipate trough multiples even for solid growers. We exited the month with 7 holdings, down from 14, and cash levels at 54%.
There is so little information on Iran you cannot even find the Teheran Stock Exchange on Bloomberg. Yet this is an exchange with a market cap of US170billion, turning over up to US150m/day with zero foreign participation, entirely on the back of domestic mutual fund and retail investors.
In Lv’iv on the morning of my departure I attended the funeral of one of the casualties of the “anti-terrorist operation” in Donetsk. Loudspeakers relayed polyphonic chant from impressively hirsute Orthodox clergy to a cluster of old women and an honor guard, smoking furiously and in no mood to be photographed, waiting to transport the hearse the short distance from the altar to a waiting ambulance.
The Tantallon Fund commenced trading in November 2003 with US5.5m in assets.
In 2005 the Tantallon Fund was named Best Asian Hedge Fund and in 2006 Best Local Hedge Fund (Singapore)
We experienced explosive asset growth, with the fund soft-closing in October 2005 at US450million and hard-closing in January 2008 at US1.5billion. Peak assets, in all products, were US1.7 billion at the end of March 2008
During the financial panic of 2008 we waived 4 consecutive monthly gate-able events and re-paid US1.1billion to clients who needed liquidity, placing our client interests ahead of any business considerations.
The majority of fund AUM is currently internal capital.
Despite this extreme volatility in assets, our commitment to the business has not wavered.
Nick Harbinson and Alex Hill are the principals of Tantallon Capital Advisors, the advisory company to the Fund. We have known and worked with each other since 1990, and have between us over 60 years of investment experience in Asia. Experience in multiple market cycles has honed our ability to identify secular and cyclical economic trends, as well as catalytic triggers. We combine top-down macroeconomic themes with bottom-up stock picking, as well as complementary individual skills with deep sell and buy side industry experience and market knowledge.
Current AUM : US$31 million
YTD results : -14.11%
Lifetime results : +109.46%
Current AUM : US$30 million
YTD results :-29.80%
Lifetime results :+5.50%
Current AUM : US$12 million
YTD results :-14.4%
Lifetime results :+6.5%
In total, our principal investment team has over 80 years of experience in investing and financial markets. On average, our investment professionals have over 27 years of experience. The team today has weathered good times and bad times, bull and bear markets, staying together and remaining committed to our goal of achieving superior investment returns over the long term for our clients. Collectively, we are also significant investors in our funds. Our personal interests and those of our clients are completely aligned.