Last week, hedge fund research and investment specialist Financial Risk Management (FRM) and Deutsche Bank, announced the formation of a new hedge fund seeding platform.
We asked Patric de Gentile-Williams, COO of FRM’s seeding business, FCA, what kinds of fund they envisage investing in. Here’s the full interview:
Q: How many hedge funds you expect to seed in the UK during 2012 – is there a target?
Patric: There is no target
Q: What criteria do you have for selecting funds to seed?
Patric: We are looking for very strong investors, which means having a clear investment thesis, robust investment process, a clear understanding of the source of return, strong risk management skills, a team that has been together for some time, that has been using this exact strategy to manage money (with complete authority over investments) and a demonstrable record of success using the strategy
Q: Which strategies you expect to be most successful in 2012?
Patric: This is not a question we spend any time thinking about, we are trying to construct long term relationships with asset managers that will provide good long term risk adjusted returns over the cycle and therefore the short term performance of specific strategies is of marginal interest to us. This combined with the difficulty of forecasting strategy returns is why we do not invest time and effort in trying to guess which strategies will be most successful in the coming period
Q: Do you expect to seed a lot of funds set up by former prop traders in banks?
Patric: We will certainly be considering proposals from ex prop traders as there are some very talented traders and investors amongst that group, whether they will turn out to be the strongest candidates that we meet is hard to predict, but we certainly expect to receive dozens of proposals from ex prop groups in 2012.
Q: Would you be prepared to seed the funds of traders who don’t have a clear audited track record, but have an interesting trading strategy?
Patric: We do not need an audited track record but we need to be able to substantiate that the people concerned were responsible for implementing the strategy they claim and that they have been successful doing so, so some form of track record is key
Q: If you could ask for any manager to walk through the door with a fund to seed tomorrow, what kind of person would they be?
Patric: Again we don’t think in these terms, but generally we are looking for established teams who have strong academic credentials, at the very least 10 years of professional experience of which at least five spent managing money (ideally double both these numbers) with a compelling and differentiated investment proposition and a strong track record.