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fund profile Strong commodity focus dominates first funds chosen for Al Safi Dubai Multi Commodities Centre, an arm of the Dubai government, invested $150 million in three commodity-related hedge funds that will trade commodity equities in compliance with Islamic religious principles. Two more funds are expected to join the first three for a total seed investment of $250 million. Three separate funds – managed by Tocqueville Asset Management, Zweig-DiMenna International Managers and Lucas Capital Management – have each been given $50 million to make investments that comply with Shariah law. They will invest in commodity-related stocks ranging from oil to gold and are the first funds to become part of Dubai Shariah Asset Management (DSAM), a joint venture between Shariah Capital and Dubai Commodity Asset Management, a wholly owned division of Dubai Multi Commodities Centre (DMCC). The feeder funds will be registered in Cayman and branded under the DSAM Kauthar name. As the first feeder fund, Tocqueville Asset Management will specialise in gold and precious metals stocks. Zweig-DiMenna International Managers will focus on a range of stocks connected to hard assets such as coal and steel. Lucas Capital Management will focus on oil and natural gas stocks. Tocqueville strikes gold The DSAM Kauthar Gold Fund is the first Shariah compliant hedge fund of its kind and the first in a family of commodity-linked funds offered by DSAM. The fund offers Islamic investors a disciplined exposure to gold and precious metal equities through one 18 | Access to Islamic Hedge Funds Supplement | November 2008 www.hedgefundsreview.com
fund profile of the most experienced managers in this asset class. Investing exclusively in units of the Tocqueville Gold Focus Fund, the DSAM Kauthar Gold Fund is a sub-trust of the Al Safi Trust managed by Tocqueville Asset Management. The fund’s return reflects the performance of the Tocqueville Gold Focus Fund. The Tocqueville Gold Focus Fund aims to produce positive, absolute long-term returns using both long and short strategies in gold and precious metal equities. It will invest primarily in the shares of precious metal producers. Short selling of equities will be used as a defensive strategy to dampen the volatility of gold prices. Tocqueville Asset Management is a US-based limited partnership registered as an investment advisor with the US Securities and Exchange Commission. It is the investment manager to the Tocqueville Gold Focus Fund and to registered investment companies, private funds and separately managed accounts. Tocqueville has been in the asset management business since 1990. At June 30, 2008 Tocqueville had over $6.5 billion in assets under management. John Hathaway, managing director, a portfolio manager and a member of both the investment committee and the executive committee of Tocqueville, has primary responsibility for management of the fund’s portfolio. Hathaway has 38 years of experience in the investment business, including the last 10 years with Tocqueville Asset Management. Hathaway manages discretionary concentrated portfolios for individual and institutional clients. As an analyst he is responsible for researching the natural resources sector and special situations. Fund investment strategy Tocqueville usually invests the majority of its net assets in gold and securities of companies located throughout the world that are engaged in mining or processing gold. A proportion of the fund’s total assets may be invested directly in gold bullion. The investment strategy of the gold fund is value orientated and contrarian. The fund invests in companies with good long-term business fundamentals that are temporarily out of favour with investors so have a market value lower than their intrinsic value. Fundamental research-based value orientation helps the portfolio manager find companies that have good businesses. The contrarian orientation enables the fund to buy these companies at attractive prices. Value orientated means the portfolio manager looks for companies that are selling at a discount to their intrinsic value and where business fundamentals are improving or expected to improve. In assessing intrinsic value, the portfolio manager’s judgements are based on a comparison of a company’s stock market value with various financial parameters, including historical and projected cash flow, book earnings and net asset value. Generally the fund looks for companies that are characterised by strong management, business franchise, competitive position and financial structure, a clear strategy, free cash flow, large insider ownership and shareholder-orientated policies. Contrarian means the fund is looking for investment opportunities in stocks and sectors that are out of favour with investors. Stocks are considered out of favour when the price has declined significantly or has lagged the relevant market index for an extended period of time and the consensus Name of fund: Management company: Portfolio manager: Contact: Domicile: Asset manager: Fund summary: among investors is not expected to improve. Investment ideas come from identifying companies where stock prices are down or have lagged the market. By analysing the quality of the business franchise and longterm fundamentals, the fund can make a judgement about the company’s intrinsic value. With a company with strong long-term business fundamentals, the fund can wait for them to fall out of favour with investors in order to buy them at a discount to intrinsic value. The fund sells stocks when they are no longer considered to be good value. Gold is particularly good if an investor wants to diversify its portfolio or wants an investment that may provide protection against inflation or currency devaluation, as long as they are also willing to accept the additional risks associated with investment in gold and gold-related securities. Middle East opportunity Hathaway sees inclusion on the platform as a real plus for his company and the fund. Not only were the majority of the fund’s deals already largely Shariah compliant, his aversion to leverage and debt made his fundamentals of dsam kauthar gold fund investment philosophy an ideal match for the Al Safi platform. Although the fund is starting with the seed capital of $50 million, Hathaway is confident he will be able to grow this to $500 million over a twoyear period. “We have the capacity to manage that sort of money and we believe we are going to be talking to investors who are already convinced of the attractions of gold,” says Hathaway. Although he would have been wary of approaching investors in the Middle East without the support of DSAM and Shariah Capital, he is confident the fund will be attractive to regional investors. Speaking about tailoring the fund to be Shariah compliant, Hathaway says trading is little different for him. The Shariah Capital screening criteria are easily accommodated and the eligible universe of Shariah compliant companies allows him to manage the DSAM Kauthar Gold Fund suimilar to the Tocqueville Fund strategy. He expects Shariah to be an important part of what Tocqueville does in the future, too, and forecasts that the company could be looking at a quarter of its investors coming from the Middle East and wanting products like the DSAM Kauthar Gold Fund. n DSAM Kauthar Gold Fund Tocqueville Asset Management John Hathaway Mohammad Jamjoum, general manager, Dubai Shariah Asset Management, Dubai Multi Commodities Centre, Al Mas Tower, 50th Floor, Jumeirah Lakes Towers, Dubai, United Arab Emirates (+971 4375 2227; mjamjoum@shariahcap.com) Cayman Islands Dubai Shariah Asset Management (DSAM) Offers a disciplined exposure to gold and precious metals equities investing exclusively in units of the Tocqueville Gold Focus Fund, a sub-trust of the Al Safi Trust managed by Tocqueville Asset Management. The Tocqueville Gold Focus Fund aims to produce positive, absolute long-term returns using long and short strategies in gold and precious metal equities, investing primarily in the shares of precious metal producers. It engages in the short selling of such equities as a defensive strategy to dampen the volatility of gold prices. Asset manager fee: 1% Minimum investment: $5 million Subscriptions: monthly Liquidity: quarterly, with 30 days’ prior written notice, subject to a 3% redemption fee in the first 12 months Auditor: PricewaterhouseCoopers Administrator: Citco Fund Services Prime broker and custodian: Barclays Capital Shariah advisor: Shariah Capital Shariah compliance: The Shariah Supervisory Board of the Al Safi Trust Platform consists of Sheikh Nizam Yaquby (Bahrain), Mohamed Daud Bakar (Malaysia), Mohammad Abdul Rahim Sultan Al Olama (Dubai) and Shaykh Yusuf Talal DeLorenzo (US), the board’s executive representative and Shariah advisor to the fund. www.hedgefundsreview.com November 2008 | Access to Islamic Hedge Funds Supplement | 19
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