Founded by Marc Hochar, a former Lebanese investment banker who had spent his entire professional life (more than 13 years) in investment banking and global markets with US investment bank JP Morgan, Melkart Capital has become the talk of Lebanese financial circles and the region. Melkart is the first large-scale international “fund of funds” to be managed out of Beirut by Lebanese specialists. In less than 20 months, the fund has attracted around $70 million of investments from high-net-
worth individuals from Europe, Latin America and, to a lesser extent, the Gulf area, as well as institutional investors, in the form of large corporations, from Europe and Latin America.
Melkart Capital is actually made up of three companies: Melkart Capital Management, a firm incorporated in the Cayman Islands, which is an asset management company specialized in global alternative investments, including hedge funds; Melkart Capital SAL, which is a Lebanon incorporated and based company, responsible for the brokerage and distribution of investment funds in Lebanon, and the Melkart Diversified Fund, which is the actual global multi-strategy fund of hedge funds. The Melkart Diversified Fund is managed by both Melkart Capital Management and by Antarctica Asset Management, an investment management firm established in the British Virgin Islands. Antarctica is an investment advisor to Melkart Capital Management, which was founded in 2001 by former investment bankers. It specializes in hedge fund management and investment advisory with around $700 million of assets under management and a research unit based in New York. Finally, it is worth noting that Melkart Capital SAL is registered as a financial intermediary in Lebanon with a capital of LBP1 billion, and is regulated by the Central Bank of Lebanon (BDL).
The “seed” money of Melkart and its flagship fund, the Melkart Diversified Fund, was initially brought in by Marc Hochar personally as well as by a small group of international investors, who were partly brought in by Antartica. With its 5-year track record and the extensive investor relationships of its managers, Antartica has been instrumental in providing the Melkart fund with investors. Antartica still plays a vital role in the management of the Melkart fund, as it provides the necessary quality research and market and industry reports, as well as all logistical support the Melkart fund might need. Fund raising was actually carried out from the start by both Melkart and Antartica who initially joined hands to raise around $70 million in 18 months. The Melkart founders/managers raised at least 50% of the total $70 million.
For the moment, 60% of the Melkart fund’s total is accounted for by European investors, while Latin American investors make up around 25%. Middle East investors make up for the remaining 15%. Most of the present investors are high net worth individuals, who normally invest into the Melkart fund through international asset managers and private banks. The latter offer the Melkart fund to their customers as one of the funds they officially represent. Currently, the fund does not include many Gulf investors. The aim is to start approaching these investors when a solid enough track record would have been built, as Gulf investors are usually reluctant to invest into funds or other investment products if there is not a few years’ track record. Only Antartica has a five-year track record which shows a more than decent return, while Melkart shows an eighteen months track record. For instance, the return of the Melkart Diversified Fund (MDF) for 2005, given net of fees was close to 15%, and has already reached 5.21% for the first two months of 2006. If all goes well, the MDF should yield perhaps more than 25% for 2006.
Melkart Capital’s structure is a solid one, in the sense that its management and distribution are carried out in Beirut, while the custodian and administrator for the Fund, HSBC, is based in the Isle of Man. The latter is highly regarded by fund managers, as it is the strictest of off-shore centers in terms of regulation for anti-money laundering. Given the Beirut base of Melkart Capital SAL, the broker/distributor, an Isle of Man custodian and administrator is of prime importance. The actual funds coming from investors are placed with the Melkart Diversified Fund (MDF), which is based in the Cayman Islands. The MDF places its funds into more than 30 hedge funds throughout the world with different investment strategies. The MDF is principally invested into equity (21.7%), while the rest is spread between global macro hedge funds, event driven funds, emerging markets, distressed and credit funds, fixed income, convertible and statistical arbitrage, managed futures and commodities. The auditors of the MDF are Deloitte and Touche, while Société Générale is the leverage provider (provider of cash through a credit facility) with a pledge on the Fund’s assets. The legal counsel for the MDF, Walkers, is also based in the Cayman Islands and is of international repute.
Not only is Melkart Capital’s structure solid, with big names in support and an internationally approved legal structure, but the investment management skills and strategy are also performing. The managers (Melkart and Antartica) have a strong understanding of the hedge fund industry, have expertise in risk management and last but not least, have access to top quality managers. The investment managers (Melkart’s managers, including Hochar, and Antartica’s managers) have a combined experience of 50 years in the fields of quantitative analysis and derivatives trading, which are widely used by arbitrage hedge funds to manage risks. It is also worth mentioning that both Melkart and Antartica have extensive relationships with a large number of global fund managers, who used to be their trading counterparties, and often, their working peers.
The investment strategy of Melkart is principally to choose the right funds to invest into, as well as the right mix in terms of diversification. The Melkart investment managers pay particular attention to the volatility of the funds they are contemplating in both absolute terms and relative to their peers. The consistency of returns is thoroughly scrutinized as well as the funds’ management quality and strategy.
A background check on managers of funds is also carried out extensively. This task is seriously facilitated with the help of Antartica, which not only has the experience and track record in the field, but also sufficient resources to carry out thorough checks of funds’ managers, their strategy and reputation. Melkart’s managers nevertheless pay a visit to the funds they invest in once every two to three months. They also remain prudent in their strategy, in the sense that they make it a policy to maintain three layers of hedge inside their investment strategy.
Overall, Melkart provides its own investors significant added value, in that it provides its investors access to top tier hedge funds, which are normally closed to individuals or new investors. Through its extensive relationships in the fund management world, Melkart can identify and provide privileged access to talented new managers. The MDF itself was short listed for “Best Newcomer Fund of Funds” in the HFR 2005 European Fund of Funds Awards, while the various Antartica funds were nominated during the same year as “Best Arbitrage Fund” and “Best Fund of Funds”. MDF not only provides access to closed funds, but also its relatively small size allows for quick asset allocations switches and investments, for a customized approach for every investor, for full transparency (monthly update, statistical data, etc.), for a full diversification benefit with a minimal investment size, and for improved liquidity.
By building such a sophisticated tool and making it accessible to investors, Marc Hochar and his partners have capitalized on an extensive experience accumulated during years of work spent among the elite of world finance. Melkart can hence be safely described as a solidly constructed pioneer, which should pave the way for the establishment of a new highly specialized niche in Lebanon.