Baker Steel offers resources portfolio for top-end market

Baker Steel offers resources portfolio for top-end market

Baker Steel Capital Managers is bringing a resources equity fund to the top-end market, focusing on early-stage companies.

The vehicle sits in the group's Cayman-domiciled Genus umbrella, alongside natural resources, gold and mining funds.

Called Genus Capital, it is scheduled for launch on 1 July and will have UK distributor status.

The group is teaming up with resource specialists AWR Lloyd and Rock Capital as advisers on the vehicle, which will have 10 to 15 holdings.

Baker Steel CIO Trevor Steel, a former Merrill Lynch fund manager, said the global portfolio will focus on unlisted companies.

It therefore has a three-year initial lock-in period, after which there will be annual liquidity.

Capital will invest primarily in pre-IPO opportunities in the global resources sector with 38% in iron ore, 18% coal, 8%, copper, 4% oil, 5% silver, 5% platinum and 22% cash at launch.

"It has a flexible mandate and invests in natural resources including mining companies, mining bulk companies such as iron ore, coal, base metals and zinc," added Steel.

"It will also look at precious metals and can invest in the oil and gas sector and companies that service it."

He said the team will identify stocks that are attractive and undervalued and target the uplift when they become listed.

"Fundamental value is the main driver. Predominantly, we will expect to realise the investments through listing or sale within two years," he added.

Baker Steel also runs a gold fund in conjunction with Ruffer, which is listed in the onshore Specialist peer group.

To appear in July issue of Eurohedge Journal – the leading alternative investment journal in Europe

Baker Steel Capital Managers, the natural resources investment boutique headed by former MLIM/Mercury men Trevor Steel in London and David Baker in Australia, is joining forces with resources specialists AWR Lloyd and Rock Capital to launch a new fund that will focus on pre-IPO opportunities and special situations in the sector.

The new Genus Capital Fund launched at the start of July with seed capital of $50 million and is targeting $200 million for a concentrated strategy that will aim to deliver high returns from a long-biased and relatively long-term investment approach.

It will run a core portfolio of some 10-15 pre-IPO holdings (spanning early-stage financings through to late-stage investments, with an investment horizon of between three and 24 months) as well as a select number of opportunistic special situations exploiting supply/imbalances, M&A plays and valuation anomalies.

It will also invest selectively in some IPOs and less liquid listed securities – sometimes on a public-to-private basis – and will also keep a cash balance at all times.

The strategy is managed by Baker Steel, with a four-strong investment committee comprising Steel and Baker together with AWR Lloyd managing director Jeremy Ayre and Rock Capital co-founder Stephen Fabian – both of whom are well-known players in the mining world.

The fund will look to invest in situations where there is a clear exit strategy – through IPOs and trade sales, management repurchase schemes or refinancings – and it is already invested in a handful of opportunities including Brazil-based iron one miner Ferrous, a copper/cobalt mining company in the DRC and coal projects in Mongolia and Canada.

Valuations will be conducted in accordance with the stringent British Venture Capital Association standards, with an independent valuation review being conducted at least annually by an external consultant and at the discretion of the fund’s two highly experienced independent directors, Edward Flood and Charles Hansard.

Reduced fees of 1.5% and 10% are available to ‘seed capital’ investors through a special share class. The fund will also offer co-investment opportunities. And performance fees, while being accrued on valuation, will be applied only on the cash realisation of gains.

Baker Steel, which was formed in 2002, runs assets of $800 million – primarily through its two well-performing long-only funds focusing on the gold and mining sectors. The firm has had an up-and-down experience with its hedge funds thus far, however.

June 2002 – and the first resources-related hedge fund to be launched in Europe – the strategy’s explicitly low-vol approach during an increasingly powerful bull market in the resources world eventually proved to be a serious constraint on performance.

Substantial redemptions at the start of 2007 took assets from a peak of $240 million to some $22 million now and the managers have since reverted to a much more long-biased and volatility-tolerant approach.

The natural resources fund was up by 57% last year, although it is down this year after several months of sharply fluctuating returns. The firm has also recently shut down its Genus Energy hedge fund strategy, managed by Steven Miller.

“We are stock-pickers,” says Steel. “This is a volatile sector and we know that, if you can try and take out the volatility, you leave a huge amount on the table in terms of returns. So we are much more return-focused now and we are running money the way we like to run our own money.”

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