Generating absolute returns from Asia Pacific equities


by Carolyn Herbert

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Transcription of Finance News Network Interview with Pengana Absolute Return Asia Pacific Fund Senior Fund Manager, Antonio Meroni
Lelde Smits: Hello I’m Lelde Smits for the Finance News Network and joining me from the Pengana Absolute Return Asia Pacific Fund, is its Senior Fund Manager, Antonio Meroni. Antonio welcome to FNN.

Antonio Meroni: Thank you so much for the opportunity given.

Lelde Smits: As your name suggests Pengana Absolute Return Asia Pacific Fund has an absolute return objective focussing on investment opportunities, with Asian companies undergoing corporate events. Now why is this a compelling approach for you?

Antonio Meroni: The most compelling thing about our approach is that we invest in companies that are subject to corporate events. And these corporate events create often opportunities for investors to capture.

Lelde Smits: How does an Asian absolute return event driven strategy compare to a traditional long only equity strategy?

Antonio Meroni: Well investing in a Fund such as the Pengana Absolute Return Fund Asia Pacific enables the investor to have a product offering offer returns, returns that are totally uncorrelated to market conditions.

Lelde Smits: Could you detail your portfolio positioning and exposure by region?

Antonio Meroni: Right. The current exposure that we are running, we’re running 180 per cent across exposure so employ some level of leverage, split into 40 per cent in Hong Kong/China opportunities, 35 per cent in Japan. We’ve received tremendous opportunities in Singapore as well and of course our Australian market, with about 35 per cent across allocation as well.

Lelde Smits: The Fund seeks to gain from listed companies undergoing significant corporate events across Australia and the Asia Pacific region. What kind of events do you invest in?

Antonio Meroni: The opportunity set for us is fantastic in the sense that we are looking at merger arbitrage situations, we look at holding company arbitrage situations and we’re looking at equity arbitrage situations as well. That forms the IR trade opportunities for our Fund. Having said that, we’ve got three other sub strategies, we are looking at earnings surprises, capital management initiatives. Capital management initiatives incorporate share buybacks demerger spinoffs. And lastly, we’re looking at index changes and directors’ buying and selling activities.
Lelde Smits: How does the construction of the Fund’s portfolio manage risk?

Antonio Meroni: Risk management is probably our key focus in this strategy; because I think I mentioned before that we hatch out all unwanted risks being beta risk, so the market risk has been eliminated. We have currency risk; we don’t take any currency deals. We hatch out the short vol exposure that M&A investing too quickly inherited. So we’ve got a very dedicated approach there.

Lelde Smits: How many positions do you hold and what are some of your largest positions?

Antonio Meroni: We typically hold about 60 to 70 situations in the book and our current largest position is a situation in Japan, again a merger arbitrage situation in a company. It’s a scrip merger of Nidec buying out its subsidiary Nidec Compal.

Lelde Smits: Which strategies have contributed most to your performance over the past six months?

Antonio Meroni: Historically M&A was the key driver of the overall book. If we think back in 2009, 2010 and 2011, there were records of M&A deals being announced. So therefore, the Fund was able to employ more capital towards that particular sub strategy. Over the last couple of years, we have allocated more capital in capital management and also in holding company arbitrage situations.

Lelde Smits: What was the Fund’s performance over the year gone and how has the New Year started for you?
Antonio Meroni: Well the Fund performance has been up quite consistently, almost one per cent averaging, which is great. But for the financial year, we’re up seven per cent over the last eight months and for the first quarter; we were up one per cent. And we were able to navigate a very difficult January performance, which was quite challenging. We were able to post a +1.9 per cent for the first January month.

Lelde Smits: Finally Antonio, what opportunities are on the horizon for the Pengana Absolute Return Asia Pacific Fund?

Antonio Meroni: The opportunities are fantastic. I mean just looking at M&A transactions alone, the Fund exploits about 100 opportunities year in year out, which is a great opportunity as I said for us to be invested in. But other sub strategies and that’s the great feature of our Fund, that we’re not only looking at risk out situations, we’re also looking at capital management initiatives that therefore share buybacks, demergers and spinoffs. And also earnings surprises which encompasses, profit upgrades and profit downgrades by companies.

Lelde Smits: Antonio Meroni, thank you for the introduction to the Pengana Absolute Return Asia Pacific Fund.

Antonio Meroni: Thank you so much.


Carolyn Herbert

Finance News Network
Carolyn joined FNN in August 2015 as the Head of News and also presented the Market at Midday and the Market Wrap. With more than five years of broadcast journalism experience, Carolyn has worked as a finance anchor on the Sky News Business channel and as an anchor and reporter for ABC News. She is also a qualified corporate lawyer specialising in IPOs, takeovers and mergers and acquisitions.