Regal Funds Management has resurrected plans to raise up to $500 million via a listed investment company, adding to a rush of fund-manager raisings on the stock exchange.

The Sydney-based hedge fund is expected to open an offer in late April, with a plan to list a fund tied to several of its strategies as early as June.

The fund initially postponed the raising as sentiment soured towards listed investment companies after the poor, post-float performance of Melbourne hedge fund L1 Capital’s offering. But its decision will test the appetite of investors to support the controversial structure.

Regal was founded in March 2004 by brothers Phil and Andrew King. Phil King has built a reputation as one of Australia’s shrewdest fund managers.

Regal plans to deploy the funds into four existing investment strategies. Half the funds raised will be allocated to Regal’s Tasman Market Neutral strategy, which aims to have an equal exposure between investing in, or taking short positions, against stocks. The remainder will be deployed equally in the emerging companies strategy, the small companies strategy, a global stock-picking strategy and in the long-short strategy, which tends to have a greater weighting to long bets than the Tasman approach.

Difficult end to year

After a difficult end to 2018 for two of its main strategies — the market neutral fund and its long-short fund — the fund will be hoping a reversal of fortune can be sustained to win over investors and add to its long-term track record.

Regal is touting its reputation to deliver outperformance by shorting stocks. According to a presentation seen by The Australian Financial Review, Regal has delivered 11.5 per cent per annum in its long-short strategy from long positions and 0.3 per cent from short positions. But it says 9.8 per cent per annum of its outperformance relative to the index has been a result of its short bets, more than double the 4.6 per cent of outperformance from its long positions.

The fund tends to refrain from publicly discussing its short positions but has revealed its betting against retailer JB Hi-Fi and real estate portal REA Group. Phil King has also proclaimed that Australian growth stocks are in “bubble territory” with 25 per cent of most expensive stocks trading at 25 times earnings. That level is comparable to the tech bubble of 2000, and well above the market’s median multiple of just under 20 times.

On the long side, Regal has also been public in its backing of Zip Co, the buy-now, pay-later company competing with Afterpay Touch.

Regal’s offer adds to a spate of raisings ranging from private equity to corporate debt, as funds seek to raise capital from retail investors via a listed format. Listed fund manager Pengana is seeking to raise up to $1 billion from investors in a private equity fund and is issuing incentive shares in the management company to prospective investors.

The Australian Financial Review‘s Street Talk column also reported that Swiss private markets firm Partners Group also plans to raise funds in its debt strategy via the stock exchange.

New listed products

Meanwhile, as more investors seek income-generating products, credit manager Metrics and the fixed income unit of well-known Australian funds management firm Perpetual are marketing new listed products. US funds management firm Neuberger Berman which listed a high-yield bond fund last year is also conducting a follow-on raising.

While there has been something of a boom in listed investment company raisings, the sector peaked when Melbourne-based hedge fund L1 Capital raised a record $1.35 billion in April last year on the back of three years of strong performance in its long/short strategy.

But the L1 listed fund, LSF, fell as much as 30 per cent. Advisers have blamed it for several floats being cancelled or delayed.

This year, however, the LSF has mounted a recovery. The unit price has gained 12 per cent since January.

L1’s raising was advised by Seed Partners, which also manages the Regal float.

Regal is seeking to differentiate itself from the L1 raising by imposing a ‘hard limit’ on the raising of $500 million. L1 attracted criticism in some quarters for raising too much money and therefore constraining its capacity. L1 has pushed back on these suggestions.

Regal has set a minimum limit on the raising of $100 million.

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