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July 14, 2008/BusinessDay


In an encouraging sign for investors who had been apprehensive about the continued decline of the Nigerian stock market, First City Monument Bank (FCMB) and INTL Consilium LLC Florida USA, recently announced a partnership to launch a $100 million hedge fund investment in Africa and the Middle East.


The First Hedge Fund, involving a Nigerian institution, aims to deliver 25 percent (in dollar term) per annum return while using hedging strategies to minimise volatility and downside.


Hedge funds are speculative funds, which make large bets on market movements. They utilise borrowed money to substantially leverage their returns and losses often at a factor to one or more.


Specifically, hedge funds purchase exotic securities and also take substantial short positions when they think the market or a particular sector of the market will go down. Such funds are extremely risky and are suitable for high-wealth investors only.


A statement jointly issued by FCMB and INTL Consilium, stated that said the fund tagged: Legacy Africa Alpha Fund will invest exclusively in Africa and Middle East debt and equity, and will be structured as an absolute return fund. The fund which will place a 30 percent cap on its Middle Eastern weighting to ensure significant exposure to Africa’s fastest growing economies has been officially launched with $100m under management.


The Legacy Alpha fund, which would be listed on the Irish Stock Exchange, intends to seek opportunities to reduce risk through hedging strategies by shorting a stock or asset class thus targeted return of 22 percent on less than 10 percent risk volatility. In terms of asset allocation, it would predominantly invest in equities, currencies and fixed income.


Commenting on the fund, Jonathan Binder, co-portfolio manager, said, \"INTL Consilium is focused on fundamental value assessed through our primary research process integrating top-down and bottom-up analysis. The new Legacy Africa Alpha Fund is a natural extension to our global products as we have been investing aggressively in the region for three years now.


\"INTL already has over $450 million invested in the region in both debt and equity securities in over 16 different countries as they were quick to identify value and growth opportunities at a time when many investors shied away. The Legacy Africa Alpha Fund is an exciting venture for our Team, as it will allow us to leverage our existing knowledge and contacts within the region,\" added Charles Cassel, co-portfolio manager.


The Legacy Africa Alpha Fund offers investors a new channel to access Africa and Middle East high-return opportunities. It also increases FCMB’s ability to offer a differentiated asset management proposition to its institutional and high net worth clients.


Commenting on the launch, FCMB’s managing director/chief executive officer (MD/CEO), Ladi Balogun, said: \"Africa is the most exciting investor destination and is likely to remain so for the foreseeable future.\"


We are leveraging on INTL’s experience and track record successfully managing funds for some of the most discerning international institutional investors. We bring access to rare investment opportunities, local knowledge and market insights. INTL and FCMB have had a relationship for over 15 years, which will be a further source of comfort for our investors.\"


By partnering with FCMB Group, INTL Consilium will access the stock picking expertise of CSL, FCMB’s soon to be acquired asset management and prime brokerage arm (pending regulatory approval in Nigeria). CSL is consolidating its position to become Nigeria’s leading asset management company both in terms of expertise and assets under management. By sending a number of its Africa focused analysts and fund managers on secondment to the management of the fund, the firm is leveraging the partnership to help build capacity for the future.


In addition to the Legacy Africa Alpha Fund, CSL is simultaneously launching two additional funds under the flagship \"Legacy\" brand. The Legacy 50 Fund, an index tracker of Nigeria’s top 50 companies by market capitalisation and the Legacy Banking 10, a quant driven semi active fund investing in Nigerian Banking shares will each be launched with N3 billion under management. This will bring total assets under management/advise at CSL to N24 billion (US$ 205 million) making it arguably the largest asset manager in Nigeria in accordance with FCMB’s continued strategy to bring additional returns to FCMB shareholders through more diversified fee based operations.


Traditionally, a hedge fund is limited to institutional investors with minimum investment pegged at $100,000 but Gboyega Balogun, executive director, Investment Banking group of FCMB, noted that the Legacy Alpha fund could also serve retail investors.


He said, \"This is the best time to bring a venture like this to the market. By investing in a hedge fund, investors can mitigate risk and reduce volatility. CSL is the biggest facilitator of foreign investment in Nigeria, the demand for the frontier market of which Nigeria is involved is quite significant\".


The investment strategy of the fund, according to Gboyega, has been structured in a top-down macro format such that it would begin by looking at macroeconomic story in each country within its universe to decide allocation/weighing to then look at sectors benefiting or otherwise from macro story in favoured countries before filtering down to fundamental analysis on chosen asset class.


He said that the fund would increase FCMB’s ability to offer a differentiated asset management proposition to its institutional and high net worth clients.


Market analysts are already commending FCMB’s initiative in view of recent volatility of the Nigerian stock market.

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