BluMont snaps up Northern Rivers

Consolidation continues in Canada's hedge fund industry, as BluMont Capital has entered into a binding agreement to acquire Northern Rivers Capital Management.

Financial details of the purchase were not disclosed but the deal is expected to close in February, 2010. Northern Rivers management team will be integrated into BluMont, which is the retail subsidiary of Integrated Asset Management (IAM). IAM oversees roughly $2 billion in alternative investment assets.

Founded in 2001, Northern Rivers is an investment management firm which offers specialized investment funds, including the Northern Rivers Innovation Fund LP, the Northern Rivers Conservative Growth Fund LP and the Northern Rivers Global Energy Fund LP. Some of the funds are prospectus-based mutual funds, while others are offered to accredited investors only through an offering memorandum.

The firm's flagship fund is the Northern Rivers Innovation Fund LP, managed by Hugh Cleland. The fund invests in a concentrated portfolio of usually smaller and illiquid companies. It is well-known for its volatile returns; in 2008 it reportedly lost 65% but past years have seen returns in excess of 90%. Since it's inception it's returned 8.76%.

While the last year has been a difficult one — in January the firm suspended redemptions on the Innovation Fund for up to two year — BluMont is keen on the strategies that Cleland and the firm's other portfolio manager, Alex Ruus, employ.

Cleland and Ruus tend to follow a relatively concentrated investment approach and may overweight selected core holdings and industry sectors in which they have particular conviction and/or specialized expertise. The portfolios are primarily long bias with opportunistic use of short positions and other hedging strategies.

"We bought Northern Rivers because we believe that Hugh and Alex are the best portfolio managers in their space. Hugh specializes in small cap investing in the technology, healthcare and resource sectors, while Alex has extensive experience running diversified portfolios and specialized expertise in the energy sector," says Victor Koloshuk, chairman, president and CEO of IAM. "They will be a welcome addition to the BluMont Capital roster of talented managers."

Koloshuk adds, "When I look at Hugh's portfolio, I see that every single one of his core positions is a stronger company now than it was before entering the worst global recession since the Great Depression, while Alex brings a unique approach to investing that has generated substantial value added for his clients for more than fifteen years in both diversified and energy portfolios."

The acquisition seems to reflect a growing trend in the hedge fund industry where larger firms are employing traditional mutual fund distribution sales and marketing tactics to alternative strategies. With a much smaller distribution base, hedge fund firms have struggled to retain assets during this last year.

David Mather, an executive vice-president at IAM, told Advisor.ca that his firm has no plans to alter the investment strategy of the team. Mather says BluMont is buying Northern Rivers for their management expertise, with the goal of enhancing their exposure through BluMont's more robust distribution network.

"We have distribution offices from Montreal to Vancouver and good quality product and access to managers like Hugh and Alex is clearly advantageous," Mather says. "BluMont is strictly a retail operation. Our model is to work through financial advisors and our current lineup includes OM products for accredited investors and mutual fund products."

Northern Rivers is hoping the enhanced distribution will increase its client service and net-inflows.

"We believe that this transaction is in the best interest of our clients who should benefit significantly from being served by a larger organization with a direct and wholesale sales force, substantial balance sheet and ample resources," says Northern Rivers' president Robert Blakely. "With over $2 billion under management, IAM is an industry leader in the design and management of alternative investments in Canada. Clients will continue to enjoy the high quality service to which they are accustomed while having access to the full range of IAM's alternative asset management expertise."