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Hedge fund to set up intricate intelligence web

Date: Monday, February 9, 2009
Author: James Mackintosh, FT.com

A former Kroll executive is trying to raise money for a new hedge fund that will use intelligence networks similar to those of the private investigator to give it an information edge in emerging markets.

Chris Morgan Jones, former head of Kroll’s European consultancy, has teamed up with Ashley Dale, ex-head of European sales for CLSA, and Alistair Candlish, a former BlueCrest portfolio manager, to create Morgan Dale.

The move is the latest attempt by a hedge fund to augment the scanty information available on many emerging market companies through traditional routes such as brokers and analysts.

“Particularly in emerging markets there’s a built-in narrowness to traditional streams of information,” said Mr Morgan Jones. “The idea is to put together a network of people who are standing in streams of interesting information.”

The network has sources in Moscow, Beijing, Seoul, Hong Kong, Dubai, Istanbul and São Paulo who are paid a basic retainer and a proportion of performance fees. Sources include political lobbyists, an ex-banker, consultants and freelance journalists, as well as a former intelligence officer. All sources have to sign an ethics code.

“It is not counter-espionage,” said Mr Dale. “The key is getting these ideas and then putting them into an investment process that’s workable.”

However, the fund is trying to raise money at a time when securing new capital is difficult. Investors are withdrawing money from hedge funds at a record rate. Emerging markets funds have been abandoned by many investors after particularly poor results last year.

Over recent years many of the world’s biggest hedge funds set up offices in Asia, South America and Russia to improve their information flow. But this has proved expensive and many are closing Singapore, Hong Kong and Tokyo offices.

A few funds have turned to cheaper alternatives. Green Cay Asset Management in the Bahamas has used Second Life, the online world, to attract budding analysts from developing countries, while other funds boast they can tap contacts built up over years working in emerging markets.

Gerson Lehrman, a US company, provides access to a network of 200,000 independent experts, and says customers – many hedge funds – carry out 20,000 consultations a month.