GIC-backed fund Nuvest aims to raise $1 bln by mid-2013

SINGAPORE Mon May 7, 2012 5:03pm IST

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SINGAPORE (Reuters) - Nuvest Capital aims to raise $1 billion b y t he first year of operations as its founder and Government of Singapore Investment Corp (GIC) veteran Aje Saigal looks to build his record outside the world's eighth-largest sovereign wealth fund.

Singapore-based Nuvest will launch a global multi-asset fund with an emphasis on emerging markets by July with seed money from GIC, Saigal said in an interview, confirming a Reuters report in February about his plans.

"Our 12-month target AUM (assets under management) is $1 billion but the strategy is very scalable for it to be much larger," said Nuvest's portfolio manager Tanuj Dutt, who set up and led Chicago-based Citadel's Asian equities quantitative research team.

According to Saigal, the traditional buy-and-hold strategy that many funds use will no longer work in the coming years due to high uncertainty and huge volatility in the markets.

"That is going to be more of a permanent feature of the landscape," said Saigal, who is also a consultant at GIC.

"We are now faced with a high degree of uncertainty in the world because of the chronic debt problems in the developed markets, the process of deleveraging and unorthodox monetary measures that are being taken to try and revive growth."

Up to 80 percent of Nuvest's portfolio will be invested in emerging markets as developed economies face stagnating growth and low returns, said Saigal.

"We think the future is going to be quite different from the past. Emerging markets are going to play an increasingly significant role in the world economy and financial markets as a source of superior returns," he said.

Most global investors still do not have enough exposure to emerging markets, Saigal said, and so "fund flows will also favour emerging markets in the years to come."

RISK PARITY

Current valuations in China, Brazil, India and South Korean equities mean investments in them are attractive over the next one to three years, Saigal said. These markets were out of favour with investors for most for last year.

While fears of a hard landing and real estate bubbles in China were valid, he said, they were overblown and "have been significantly discounted by the markets".

Saigal has spent his entire investment career at GIC since its inception 30 years ago.

He joined GIC as an equities portfolio manager and became chief investment officer of global equities in 1990. He was director of economics and investment strategy prior to being appointed a consultant.

"His area of expertise is in global asset allocation. He is a big believer in the risk parity approach," said Melvyn Teo, professor of finance and director of Singapore Management University's BNP Paribas Hedge Fund Centre.

Nuvest will manage the fund using a risk parity approach by adding a moderate amount of leverage to its fixed income investments to increase returns.

Risk parity is an alternative approach to investment management that focuses on allocation of risk instead of capital. This approach has won favour since the global financial crisis.

Nuvest has hired former Barclays Global Investors and Vanguard executive Lee Yuit Chieng as chief operating officer, as well as Kiran Singh, who was with INVESCO Australia.

GIC, estimated by industry analysts to manage about $250 billion to $300 billion, is ranked the world's eighth-biggest sovereign wealth fund by the Sovereign Wealth Fund Institute, a U.S.-based research organisation.

The Singapore sovereign wealth fund has backed funds in the past, such as $300 million committed to a U.S. hedge fund for investing in real estate securities, and some managers have also moved out over the years to set up their own funds.

Over a 20-year period to the end of March 2011, the sovereign wealth fund saw a real return of 3.9 percent a year.

(Additional reporting by Kevin Lim; Editing by John O'Callaghan and Jeremy Laurence)

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