'Hedge funds for everyone' draw ire of some investment professionals

Date: Friday, April 27, 2007
Author: Kambiz Foroohar, Bloomberg News

NEW YORK: Three salespeople surrounded a speakerphone in a glass-fronted store across from the main branch of the New York Public Library on Fifth Avenue, talking with their counterparts in Chicago and Toronto. In the lobby, flat-panel televisions ran a loop of commercials for commodity investments.

The shop is part of what Christian Baha, a college dropout and former Vienna police officer, says is the next wave of investing: a company called Superfund that is selling hedge fund-style investments to the masses.

To get Superfund's name out, Baha has starred in his own commercials and sponsors Bode Miller, the skier, and the American Ballet Theater. In the autumn, he rubbed shoulders with Teri Hatcher, a star of "Desperate Housewives," and the model Claudia Schiffer at the Women's World Awards in New York, which has Mikhail Gorbachev as president and Superfund as a sponsor.

"If hedge funds are good for the rich, they are good for everyone," Baha said.

Baha started his firm 11 years ago in Vienna. Today, it has 20 funds, $1.5 billion under management and 20 offices in 16 countries.

Baha, 38, said he wanted to follow the path of Charles Merrill, who started what became Merrill Lynch in 1914, or Edward Johnson, who in 1946 founded Fidelity Management & Research, the predecessor of Fidelity Investments, the world's biggest mutual fund company.

In the United States, Baha invites people with as little as $5,000 to put their money into investments that take hedge fundlike risks.

"Merrill pioneered the retailing of stocks; Fidelity did the same thing with mutual funds," Baha said. "One day, Superfund will be a household name."

It may already be. Baha's pitch irks industry veterans like Bill Dunn, founder of Dunn Capital Management in Stuart, Florida. "We don't advertise, because we are not going after the $5,000 account," said Dunn, whose fund has averaged a 19.2 percent annual return, after fees, over the past 32 years.

In the United States, where Securities and Commission guidelines limit hedge fund investments to people who have a net worth of $1 million or income of $200,000 for two consecutive years, Baha calls his U.S. funds "managed futures." Baha's two U.S. funds invest in more than 100 markets, including oil, coffee and currency and index futures.

Baha and Christian Halper, chief technology officer of Superfund, designed a computer program that is maintained by a research team of 35 people.

Baha said the program exploits trends in commodity prices that go consistently up or down, using models of past price movements. Once a trend is identified, Superfund's "black box" issues a buy or sell order.

"The charts never lie," Baha said.

Baha said he picked the name Superfund for his U.S. funds to highlight performance. In 2002, his main fund, Superfund Q-AG, returned more than 38 percent, after fees.

Aaron Smith, Superfund's North American director, said Baha did not know that the term "superfund" had been used in the United States since 1980 to designate toxic waste sites that would be cleaned up using government money. "When I told him, he said, 'Good. We'll clean up the markets,' " Smith said.

Baha's approach rankles some industry veterans. "He's an embarrassment to the hedge fund community," said John Godden, who heads IGS Group in London, which invests in hedge funds for pension funds and other institutions. "Baha is a wonderful self-publicist in a world where self-publicists are not welcome."

Baha has a response for his detractors: Superfund Q-AG returned 554 percent from its inception in March 1996 to April 17, 2007, or an average of 18.4 percent a year after fees, according to accounts audited by KPMG Austria.

Superfund has fallen back to earth in recent years. In the past five years, its U.S. funds have returned less than the benchmark stock market index for mutual funds. Quadriga Superfund L.P. Series A had a 6.9 percent average annual return, after fees, from its October 2002 inception to April 17. The Standard & Poor's 500-stock index gained 11.6 percent a year in the same period.

Last year, the Series A fund rose 12.9 percent after losing 9.4 percent in 2005. In the first three months of 2007, the fund lost 18.2 percent. Quadriga Superfund L.P. Series B fell 25.6 percent in the first quarter of this year, according to documents filed with the SEC.

Baha supporters like Lewis Ranieri, chairman of CA, a software company based in Islandia, New York, said Superfund's investments in gold, copper and other commodities let them diversify.

"The kind of investing they do is not something I'd do on my own," said Ranieri, who is a Superfund investor. He said he likes the ability to invest in 100 different markets at one time.

Baha dismisses the slide in his U.S. funds in the past four years.

"Once we get 30 percent growth, the questions will stop," he said.