H3 Global Seeks Sovereign Wealth Investments to Grow Hedge Fund H3 Global Seeks Sovereign Wealth Investments to Grow Hedge Fund H3 Global Seeks Sovere

Oct. 7 (Bloomberg) -- H3 Global Advisors, a Sydney-based commodities and hedge-fund manager, is seeking to lure cash from sovereign wealth funds including Korea Investment Corp. as it aims to more than double assets by the end of 2010.

The firm has held talks with groups such as KIC, Government of Singapore Investment Corp., Abu Dhabi Investment Authority, and Australia’s Future Fund, H3’s co-founder and Chief Executive Officer Andrew Kaleel said in an interview. While H3 doesn’t manage any sovereign wealth money at the moment and no deals have yet been reached, sovereign funds may make up as much as 20 percent of the A$500 million ($445 million) H3 is aiming to manage by the end of next year, he said.

“These are the type of groups we are targeting,” Kaleel, 40, said. “ It’s early stages for a lot of these guys. Some like commodities and some are looking at building exposure.”

Kaleel and his younger brother and H3 co-founder Mathew are seeking to tap into increasing demand for alternative investments from the world’s sovereign wealth funds, stung after helping U.S. and European banks raise capital during the financial crisis. Sovereign funds manage a combined $3 trillion according to Deutsche Bank AG.

H3, founded by the Kaleel brothers with about A$500,000 of their own money in 1996, manages about A$200 million in three funds. Ascalon Capital Managers Ltd., owned by Westpac Banking Corp., Australia’s second biggest lender, owns 30 percent of H3.

Spokesmen at GIC, KIC, the Future Fund and Abu Dhabi Investment Authority refused to comment.

Commodities Fund

The H3 Global Commodities Fund returned 8.7 percent this year to the end of August according to H3 data, beating the DJUBS Commodity Index of futures contracts on 19 commodities, which rose 7.2 percent. Since inception in November 2005, H3’s commodities fund has returned 39 percent versus a 17 percent decline in the index, with lower annualized volatility, according to H3’s August fund report.

The A$60 million H3 Global Strategies Fund, started in 1999, is a macro hedge fund that invests across asset classes betting on economic trends. The A$10 million Global Currency Program was spun out of the macro fund in 2004, and in 2005 it hived off the commodities fund, which now manages about A$130 million.

The long-only commodities futures offering will drive the firm’s expansion, with its funds under management targeted to more than triple to A$400 million by the end of next year, Andrew Kaleel said.

“Once you get critical mass, you can then start getting in front of sovereign wealth funds,” Mathew Kaleel, 36, said.

Sovereign Wealth

GIC, manager of more than $100 billion of Singapore’s foreign reserves, increased its allocation to alternative investments, including hedge funds, to 30 percent in the year to March 31, from 23 percent a year earlier, it said last month. GIC spokeswoman Jennifer Lewis declined to comment on whether the fund is in discussions with H3.

Seoul-based KIC, set up in July 2005 to invest part of South Korea’s foreign-exchange reserves overseas, will start investing $1 billion this year in alternative investments, including commodities and hedge funds, Chief Executive Officer Chin Young Wook said in July.

“It is our policy not to comment on any investment plans until they are finalized,” Park Jong In, the director of KIC’s Investment Strategy Team, said by telephone from Seoul.

Australia’s A$61 billion Future Fund had 5 percent of its portfolio in alternative assets, according to its report for the year to June 30. Will Hetherton, head of public affairs at the Future Fund, declined to comment. An Abu Dhabi Investment Authority spokesman also declined to comment.

Gold, Silver

H3’s commodities fund is overweight gold and silver, betting on their alternative currency status in case the U.S. dollar continues to weaken. It’s underweight natural gas, which it says is oversupplied. The fund has about 28 percent invested in cash, down from as much as 90 percent at the end of 2008.

Gold futures have rallied 21 percent in the past year, while silver has surged 50 percent. Natural gas futures have tumbled 40 percent over the past year.

The global macro fund has returned 322 percent since starting in November 1999, with annualized returns of 16 percent. This year it’s down 3.3 percent in the January to end-August period, according to H3 data.

The Kaleel brothers teamed with Ascalon Capital in July 2007, when H3 managed about A$45 million, Andrew Kaleel said. That helped attract inflows last year, the worst on record for hedge funds, including A$35 million from Mercer in September 2008, the month Lehman Brothers Holdings Inc. filed for bankruptcy.

Russell Clarke, the Melbourne-based chief investment officer of Mercer, confirmed the allocation to H3.

“We made a strategic decision a couple of years ago to avoid the wholesale fund-of-fund market, even though you can raise money there very quickly, to try to target those investors that take a legitimate long-term view,” Andrew Kaleel said.