Tough times for new hedge funds, says veteran fund manager

Date: Thursday, October 27, 2011
Author: Nina Pablo, The Asset

Starting a new hedge fund in these tumultuous times is a difficult venture, admits Stephen Diggle, co-founder of the now-defunct Singapore-based hedge fund Artradis Fund Management. When he and co-founder Richard Magides decided to go their separate ways and closed Artradis at the end of February 2011, however, Diggle wanted to continue working with other investors and further broaden their capital.

With this in mind, Diggle reopened the doors of their office, under the new name Vulpes Investment Management. In this tough post-crisis environment, he says it’s a “terrible time to start a new fund,” citing the near-impossibility of getting money from investors. Vulpes, whose USD200 million seed capital was 90 percent from partners, is a somewhat different story. While it is a new fund, it is also in many ways a continuation of Artradis, which at its peak at the start of 2009 was managing about USD4.5 billion.

“Legally, we’re still the same entity. We’ve got the same offices, infrastructure, and a lot of the same people (10 of Vulpes’ team of 14 transitioned from Artradis). We’ve added another level of risk management technology, but other than that [Vulpes is] operating the same platform [Artradis has] been growing for the last 10 years.”

The pivotal difference is that Magides is no longer a part of the fund, which is why Diggle decided to start fresh. He is keenly aware the investors are watching how he will handle running a fund without his partner, with whom he worked very closely. “We have a track record going back 10 years, but I think it is important to note that it is… very much a track record of me and my partner. I have half a track record,” he says, jokingly.

Diggle’s vision for Vulpes is strong and unique, one that he hopes will attract more and more investors over time. He has plans of moving his family businesses, which he has been running for several years with his brother Martin, into the company’s platform as part of his intent to increase investor-manager involvement.

“I want all the significant operations of my family office built into the platform, which will allow other investors to invest alongside me. The idea is, by the end of the first quarter of next year, Vulpes will have a very significant amount of partner capital invested in it,” he explains. “It’s a slightly different hedge fund proposition than a normal one. We’re effectively somewhere between a family office and a hedge fund. We have several family activities, and rather than run those privately, I run them as funds, all available for investors [to be part of].”

He says that the approach he is taking to his new hedge fund is in response to “a very damaging lack of involvement between asset manager and their customers” that he saw in 2008. Because of this, he wants to achieve a much better level of involvement, and with him acting as a seed investor in Vulpes’ funds, he begins crafting a solution because “investors can literally invest alongside me.”