Challenger to open new small cap fund

Capacity constraints have forced Challenger Financial Services to shut down the small cap fund it bought off HSBC Asset Management (HSBCAMA) only four months ago and instigate plans to offer a new fund to institutional investors within the coming month.

Challenger chief executive Chris Cuffe said that a new Kinetic Investment Partners small caps fund will be opened to institutional investors “sometime in August” once licensing requirements are met.

Kinetic is a proposed boutique investment company conceived last month, when Challenger signed a heads of agreement for its establishment with former members of the HSBC small caps team, Richard Sharp and Jonathan Findlay.

Challenger has a minority stake in Kinetic, which Cuffe confirmed would become operational in early August. Kinetic will also start managing individual mandates for institutional investors who want small caps exposure from the same date.

The relatively small number of retail investors in the Challenger FM Premier Small Companies Fund (formerly the HSBC Premier Australian Small Companies Fund) will get their investment back in cash from June 30. After June 30, the wholesale version of the old HSBC fund will be managed by Kinetic.

Challenger’s other small cap fund, the Challenger Small Companies Fund, which was closed off to new investors last year, will continue to be managed by the Challenger small caps team.

Challenger paid $21.9 million for HSBCAMA, well under 1 per cent of its $3.2 billion under management.

At the time, analysts suggested the bargain price could reflect capacity constraints in its small cap fund and listed property business.