Duet buys New Star's troubled "Heart of Africa" fund

LONDON, April 6 Mon Apr 6, 2009 3:23pm BST

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LONDON, April 6 (Reuters) - Fund manager Duet has bought up troubled manager New Star's "Heart of Africa" fund, one of the highest profile to track the boom in African frontier markets which closed amid the global financial crisis.

New Star, being brought up by rival Henderson (HGGH.L), suspended the then roughly $40 million fund in December citing difficulties in honouring redemptions before announcing in February it was winding it up completely and selling it off.

Duet, which would not say how much it paid for the assets, already runs an African index fund simply tracking sub-Saharan markets outside South Africa and will run its new purchase as part of a just-launched Africa opportunities fund under active management. It will not say how large the fund is.

"We will be rebalancing it," said Duet fund manager Ayo Salami, adding that he bought the stocks at the "good" discount. "It has some very good stocks in it but some of the stakes are simply too big."

He said the fund had roughly 40 percent of its assets in Malawi and Ghana, both fledgeling exchanges with very little in the way of liquidity, making it very difficult for New Star to sell their positions when investors wanted their money back.

He said Duet would aim to very slowly sell off some of those positions to move to a more liquid fund, but was in no particular hurry to do so.

"We are not going to be forced sellers," he said.

A sudden sell-off of New Star's African assets would have put further pressure on small African stock markets which have already suffered from falling commodity and oil prices and diminishing foreign investment as the global downturn hit the continent.

As the global financial crisis hammered markets last year, liquidity in small African stock exchanges such as Ghana, Tanzania and Zambia all but dried up.

LAGGING FRONTIERS

Fellow fund managers say New Star's Africa fund, which offered a daily redemptions, found it particularly hard. Most other frontier funds only offer weekly or monthly redemptions -- and often also hold established African markets such as Egypt and South Africa, which are more liquid.

Global emerging stockmarkets .MSCIEF are enjoying something of a rebound, up some 30 percent in a month on hopes of a bottom in the global economic crisis, while the frontier markets including Africa are seen generally lagging.

With investors still risk averse after the events of the last year, they are seen generally much less enthusiastic about putting money into markets from which it might not be possible to withdraw swiftly -- with worries over investment or capital controls also heightening caution.

Salami said Duet's Africa index fund was still down some 40 percent from last year's peaks, with a modest recovery of some 4 percent in March.

But he said he expected frontier markets such as Africa to outperform in the medium to longer term, supported by Africa's healthiest demographics -- more young people -- as well as recent shifts towards democratisation and better economic policy.

He said Duet's success in attracting new funds to set up its Africa opportunity fund -- which will also include other new purchases outside from those taken over from New Star -- showed some investor appetite for the continent was returning.

"Africa is still a good investment story," he said. "All the reasons we were talking about for investing in Africa last year are still there." (Editing by Mike Nesbit)

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