First online hedge fund ‘at forefront of sector’

Gareth Abbot, a former City trader who returned to Glasgow six years ago to become a fund management entrepreneur, has created Scotland’s first computerised hedge fund business.

Crinan Capital seeks absolute returns to match the double-digit annual figures achieved by “system-driven” mega-funds such as AHL, the $21bn core of MAN Group.

The tiny Scottish rival has been in pilot mode, operating as an investment club for its backers, who have now injected some £400,000 of seed capital.

It is outsourcing key non-investment functions to the likes of NCM (formerly Noble) and Savile Row-based futures broker BFL, and has set up in Glasgow’s Baltic Chambers with a target of raising £25m for its first fund and £250m longer term.

Mr Abbot says: “We intend this to be cutting edge and at the forefront of Scotland’s very traditional asset management sector. By system driven we mean investment decisions such as when to buy and sell are made using a fixed set of rules clear enough to computerise.”

He adds: “We feel there is a strong demand for the type of products we are bringing to the market.”

Mr Abbot began his City career as a graduate apprentice to colourful Glaswegian broker and investor Duncan Duckett, and latterly worked for hedge fund manager Harmonic Capital.

He says: “I worked most of my career in London and in 2004 I decided to set up what is now called Crinan Capital. Since then the majority of our time has been spent developing the system.”

On the choice of name, he explains: “The Crinan canal has served as a safe and reliable trade route for over 200 years, it has a clever design, constantly protected by sea lochs so it can’t run out of water – we are trying to provide something safe and reliable.”

The first fund to launch, Crinan Stability LP, will invest in a portfolio of “carefully selected futures”, traded on worldwide exchanges.

It is structured as a “missing link”, to stabilise a traditional investment portfolio by neutralising stock market losses, and offsetting increases in the cost of property ownership, whilst at the same time delivering absolute capital growth through broadly diversified investments that offer “robust performance in any economy”.

Mr Abbot says: “The global outlook has never been more uncertain. The economic recovery is fragile, housing markets unstable and saving rates remain at all-time lows.

“As traditional investments lose their lustre, the need for astute diversification and the stability this brings has never been greater.”

He says the investment club “did pretty well” during the crash of 2008-09. “That in particular woke people up to what we could do.”

On the credibility of the company, Mr Abbot says: “We have used a modular management team to ensure experience and expertise in each of the key functions.”

Professional advisers include Brodies, Campbell Dallas and Clydesdale Bank.

The investment style uses futures but without piling up extra leverage, it trades only the short side of stock markets, and it aims to make returns not from intensive trading but long-term trends.

A performance fee is only triggered if performance is above the all-time high – also a feature of AHL’s fee structure.

Crinan hopes to find its way onto fund platforms and appeal to institutional investors, Mr Abbot says. “If we can make sure it is available in the correct places, it is going to sit inside retail and institutional portfolios, and do a good job in enhancing people’s wealth.”