UK activist fund manager Martin Hughes’
Toscafund Asset Management group is closing its award-winning
Tosca Opportunity fund – and its sister fund Tosca
Mid-Cap – to new investor inflows with effect from 2
June in a move that the firm describes as underlining its focus
on performance rather than asset-gathering.
In an explanatory newsletter sent out to investors this
week, portfolio manager Hughes made clear that the expected
future performance of the fund’s net asset value
per share takes priority over the size of the funds managed.
"This is a clear demonstration of the commitment to alignment
of interests and has been warmly received by existing
investors," said Toscafund in a statement.
Tosca Opportunity adopts a private equity-style approach in
terms of the fund’s investment time horizon and
targeted returns, investing in publicly listed equities. The
manager anticipates that the fund’s core holdings,
many of which have already been held for at least four years,
will take up to a further two years to reach fair valuations or
exits. "It is therefore envisaged that the funds will remain
closed to inflows for at least two years," Toscafund said.
In the April month-end newsletter, Hughes said: "In being by
far the largest shareholder, the PM is unashamedly protecting
his own interests in setting out to maximise the upward
movement of the net asset value, rather than allow asset
gathering to dilute the returns of current investments, some of
which now approach the reasonable investment limit."
He added: "I hope the shareholders agree that this is an
unequivocally positive situation for all shareholders. Known
inflows and capacity agreed puts the fund in a comfortably
invested position. As such, stemming the inflows beyond known
commitments after 2nd June would be in the interests of all
In a separate statement, Hughes – the CEO of
Toscafund, commented: "I understand that closing a well
performing, multi-award winning fund to inflows may not be
common practice in an industry where AUM is often an objective
that is set ahead of performance. My personal objective is for
the future annualised returns to continue to outperform and at
least match the past."
He added: "Since inception in 2005, Tosca Opportunity has
delivered an annualised return of 14.4% net, which compares
with just 4% for the MSCI World Index. I look forward to
working with the management and directors of our holdings to
set out the best path to a fair equity valuation for each
London-based Toscafund was founded in 2000 by Hughes, who
was previously chairman of Tiger Management Europe Limited. The
firm manages a range of equity funds specialising in global
financials and UK mid-cap activism – as well as other
more opportunistic strategies targeting areas including UK
mortgages and UK commercial property. Toscafund currently
manages around $3 billion of assets and employs 33 people.
The firm enjoyed an outstanding performance in 2013 across
its range of equity-focused hedge funds – with both
Tosca Opportunity and Tosca Mid-Cap winning EuroHedge awards in
January for their performances the previous year.
Tosca Opportunity won the award for Event-Driven &
Distressed funds with a stellar return in 2013 of 56.14% - on
an annualised Sharpe ratio of 3.77 – while Tosca
Mid-Cap won the Specialist Equity category for a second year in
succession with a return of 44.42% in 2013 and a very high
Sharpe ratio of 7.39.
However, this year’s more unsettled equity
market conditions have made for a much more challenging
environment. Tosca Mid-Cap is down by over 6% so far this year
after losing more than 8% in April – while the $500
million Tosca Opportunity fund is also down for the year to the
tune of -3.45% through April, having lost 6.42% in the April