Pengana delivers in small caps

Pengana Capital has countered negative returns generated by hedge fund investments in its listed cousin, Pengana Managers, through its Emerging Companies Fund, which produced a return after management fees of 26.7 per cent in its initial year.

The return means the Malcolm Turnbull backed fund outperformed the S&P/ASX Small Ordinaries Accumulation Index, its benchmark, by 9.4 per cent as at October 31, 2005.

The fund finished its first 12 months with funds under management of $38 million but is aiming to reach a capped level of $300 million.

One of the product’s main investment processes is a program of company visits to allow the investment team to build relationships with company management in order to obtain an accurate assessment of company operations.

Portfolio co-manager Ed Prendergast believes this practice was the cornerstone of the fund’s success in its debut year.

“These results are testament to the hard work throughout the year and show the importance of quality management in small cap investing. In the first 12 months of operation, we conducted over 350 company meetings, averaging over seven per week,” he said.

Moving forward, Prendergast has already identified market sectors the fund will be examining closely with a view to investing. These include IT services on the back of a cyclically-driven recovery, financial services due to government mandated growth, and blue collar labour hire as a result of the skills shortage in the employment market.

The strong performance of the small caps fund comes as a welcome fillip for the investment management business which posted a net loss after tax of $1.105 million earlier in the year.

The poor operating result was mainly driven by negative returns from the firm’s hedge fund activities.