Veterans from Man to target hedge start-ups

Date: Monday, October 6, 2008
Author: James Mackintosh, FT.com

A group of former Man Group executives, including ex-chairman Harvey McGrath, has formed a new company to invest in early stage hedge funds.

Daniel Barnett, former Man finance director, John Kinder, former head of sugar trading, and Mr McGrath, who spent almost three decades at the world’s biggest listed hedge fund, are behind New York-based Revere Capital Advisors.

The group hopes to buy stakes in small hedge funds and provide marketing and infrastructure support to help build them up. It has about $10m provided by its partners to invest in managers, and is looking to put together strategic investors who would put money into the funds.

Mr McGrath, who takes over as chairman of Prudential in January, said the current turmoil in the industry – with this year the worst on record for hedge fund performance – made it “an interesting time” to be launching.

“Clearly the shape of the industry will change but I have no doubt that the talent out there will find new ways to find alpha [outperformance],” he said. “I don’t think this is the end of the hedge fund industry.”

New hedge funds frequently find it tough to get going but an increasing number of venture backers – including Man itself – provide seed capital in return for a share of revenue or a stake in the company.

Mr Barnett said that Revere aimed to purchase an initial small stake in promising hedge fund managers with less than $50m under management, and take an option to increase it once they hit a fixed level of assets – in return for helping them raise money. He is aiming to have holdings in six to seven managers within 18 months.

The approach of taking options linked to asset-raising is designed to align the interests of the manager and Revere, Mr Barnett said. “The seeders [who back new hedge funds] lately want more and more for less and less,” he said. ”I don’t think there is a great co-operative relationship going on there.”

The company is starting out with holdings in two funds, San Francisco-based Broadmark Asset Management, of which Mr Barnett is chief executive, and London’s Dickson Capital, managed by Andrew Dickson. Both managers also hold a small stake in Revere Capital.

Mr McGrath, together with his successor as Man chief executive, Stanley Fink, who retired this summer, are credited with building the company from a sugar and commodities trader into the biggest listed hedge fund manager.

Mr Fink re-entered the industry almost immediately after leaving Man, becoming chief executive of International Standard Asset Management, a small London hedge fund, last month.