January 25, 2012 / 10:48 AM / 7 years ago

Hedgies braving battered markets to go it alone

LONDON (Reuters) - Several high-profile hedge fund managers are preparing to strike out on their own this year, supported by strong followings and unfazed by a year of poor industry performance that has shaken investor confidence in the $2 trillion sector.

Managers including ex-Gartmore star Guillaume Rambourg, ex-Barclays Capital (BARC.L) commodities trader Todd Edgar and Sutesh Sharma, a senior proprietary trader at Citi (C.N), are among those trying their luck, said several hedge fund investors and sources familiar with capital raisings in the industry.

The new launch pipeline — led by managers jumping ship from existing firms or now defunct bank proprietary trading desks — is busy despite an investor shift into safe havens.

“Now we see a lot of launches from people coming out of hedge funds where they have run established funds or part of the portfolio in a hedge fund format,” said Lisa Fridman, head of European Research at fund of funds house Pacific Alternative Asset Management Company, which invests in start-ups.

“If people have a unique strategy and can navigate these challenging markets they should be able to launch.”

For those who successfully launch, running a hedge fund can prove a very lucrative career move, earning managers tens — and even hundreds — of millions of dollars as their funds rack up the management and performance fees they charge clients.

Macro funds, which make calls on large global events with bets across asset classes and relative value funds, strategies that seek to profit from price discrepancies rather than predict market directions, are among the most popular with investors.

In areas where relatively fewer hedge funds operate, like emerging markets, several managers got launches away late last year, raising hundreds of millions of dollars at the height of the debt crisis.

Ex-SAC trader Ali Akay launched equity fund Carrhae Capital, while ex-Deutsche Bank (DBKGn.DE) Head of Emerging Markets trading Kay Haigh started Avantium Investment Management, a macro fund, sources said at the time.

Many managers missed out on a big pay day in 2011 after poor performance deprived firms of lucrative fees, encouraging some to team up with ex-colleagues and go it alone.

Strong flows of institutional cash and a solid seeding business is also giving managers the confidence to launch.

Rambourg, whose Paris-based equity long-short Verrazzano Capital will launch later this quarter, two sources familiar with the firm said, forged a big reputation while running money at Gartmore — his exit sparked a string of client redemptions.

Rambourg’s fund will bet on equities to rise or fall and should be one of the bigger launches in Europe in recent years. The fund is on track to launch with upwards of $500 million when it opens to external investors in March, and hopes to run up to $1.5 billion before soft closing, one source said.

Verrazzano would not comment.


Other managers set to launch include ex-Eton Park Capital Management’s Thierry Lucas, another source said. His newly-founded Portland Hill Capital is eyeing $500 million for an event-driven and equity long-short fund, the source said.

Event-driven funds make money by taking positions on corporate events like mergers, bankruptcies and restructurings.

Emerging markets focused Falcon Edge Capital, set up by ex-Blue Ridge Capital and ex-Eton Park Capital traders, will also begin trading soon, a separate source said.

It is not only managers leaving existing funds getting ready to launch. A U.S. regulatory clampdown on banks trading with their own capital has led many banks to close prop desks, leaving traders to set up funds on their own.

Goldman Sachs (GS.N) was among the first to shut its prop desks, encouraging star players like Pierre-Henri Flamand and Morgan Sze to build new firms, but some executives at rival banks are still to make their move and launch.

“I think the traders and portfolio managers coming out of investment banks is a trend we will continue to see. The regulation around it is still not 100 percent clear and so a number of these guys are setting up on their own,” Chris Barrow, global head of sales for prime services at HSBC (HSBA.L), said.

As well as a strong track record, launching in the right area is key. Several strategies performed poorly in 2011 and the average fund fell 4.8 percent, Hedge Fund Research data showed.

DSAM, launched by Guy Shahar, an ex-Goldman Sachs co-head of equity derivatives trading, started trading in late 2011 after strong demand, two sources said. The fund plans to grow to $500 million, one of these sources said.

“I think there are a reasonable amount of people looking for that type of a profile — a low net, steady, trading oriented fund that in theory should be able to make money and grind out returns,” the source said.

Nicola Meaden Grenham, chief executive of Alpha Strategic APS.L, which provides managers with capital in return for a slice of revenues, said while demand for macro funds was strong, equity focused launches without a star manager may struggle.

“Some will be really good traders and there will be a place for them. But results (across the sector) have been pretty disappointing, which is a polite way to phrase it.”

Investors added some $28 billion to macro funds, and $36 billion to relative value arbitrage funds in 2011, HFR data showed. Equity hedge strategies pulled in $2.2 billion, by contrast.

Debutants without the backing of a big institutional manager face a battle to survive. Almost three-quarters of the $70 billion investors put into the hedge funds in 2011 flowed to managers running more than $5 billion, according to HFR data.

“The difficulty they (new managers) are having is unless you have some kind of critical mass or have a very good track record you can take with you, you are in the bucket of the small start up fund and that is pretty tough,” Barrow said.

Additional reporting by Laurence Fletcher; Editing by Sinead Cruise and Dan Lalor

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