Opportunities offered in UK market with new Odey fund

hugh hendry to manage odey's fourth pan-european fund

Odey Asset Management will launch its fourth long/short hedge fund at the end of September, a pan- European vehicle to be managed by Hugh Hendry.

The new fund, Odey Eclectica, will be run with a model asset allocation of 80% UK equities and 20% European equities. It will be managed in a similar vein to Crispin Odey's long/short Odey European Inc, on which Hendry is deputy manager.

Odey European Inc, launched 11 years ago, is now soft closing. The fund has $330m in assets and will be closed to new investors when it reaches $350m, before closing entirely at $400m.

Hendry, who also manages the group's long-only Odey Continental European and offshore pan-European Vitruvius funds, said the UK market offered greater opportunities for the hedge fund manager.

Hendry said: 'The overriding objective of the hedge fund will be to invest in the UK, which is a clear difference to Crispin's European fund. There is a much greater depth to the UK, with more than 2,000 companies and a more liquid market for small and mid-caps.'

He expects the fund to be positioned well away from the index at launch. Hendry believes that virtually all of the risk in equity investing at present lies in closet indexation and he is seeking to mitigate this through concentrating his risk exposure on non-index stocks and company specific concerns.

Hendry said: 'We have closed down all of our active bets and built a portfolio which is 99% exposed to non-systematic or company specific risk, which we are quite comfortable with. Today, 99% of the risk is in the market, which is trading at the wrong price and is why most unit trusts are going down with the index.'

Hendry's bearish stance on Europe is reflected in the current make-up of the long-only portfolio, which is currently positioned 35% in European government bonds, 20% in cash and about 40% in equities, with the remainder made up of gold, corn, wheat and other soft commodity market futures.

Hendry noted: 'The residual portfolio is made up of non-index stocks already on five times earnings, and the trick will be moving into large caps when we reach the bottom, which we do not anticipate soon.'

When he does see the bottom, Hendry will be able to move his liquid bond and cash weightings into large-caps and capture the growth without taking further hits on the downside in the meantime.