The Tantallon Fund is a Cayman Island vehicle which invests in listed equities in the Asia Pacific region. The fund targets a concentrated portfolio of 35 names, with a 3-5 year investment horizon. At the portfolio manager’s discretion the fund may hedge its market and currency exposure, and short sell individual securities.
In the 10 years since the fund’s inception the un-hedged long book of the Tantallon Fund has returned an annualised +12.2% compound. The net return is a significantly more pedestrian +7.2%. While the ability to go short protected the fund somewhat in the latter half of 2008, our experience since then, in the face of persistent intervention by regulators and central banks, has been consistently bitter. In mid-2012 we concluded that shorting was detracting from our ability to travel and research companies and resolved to discontinue the practice. However we saw little upside in surrendering the option and we retain the flexibility to hedge. An investor’s equivalent of the Hippocratic Oath, First, Do No Harm, is a discipline we have attempted, with modest success, to apply when looking at either market or individual stocks on the short book since then.
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The fund declined sharply, losing -8.4%, underperforming weaker regional markets by a wide margin. We are now -5.16% for the year.
Given that I had anticipated a shift in market sentiment this result was extremely disappointing. I was insufficiently aggressive in increasing our short side exposure, somewhat rusty and sluggish after a long hibernation. And I was particularly slow to recognize that I had a great deal more China risk in the portfolio than I had thought. Finally, our JPY position, which acted well as a risk-off balance to the portfolio in the 1st half, is now instead magnifying the weakness. We lost -2.59% in the JPY forward, -2.67% in Hong Kong (principally a 20% fall in Melco), and -3.1% in India, where a 30% fall in Aegis accounted for 80% of the drawdown.
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.
Portcullis Trust (Singapore) Ltd
Morgan Stanley & Co. International plc /
PricewaterhouseCoopers LLP