| Hedge fund management takes off as significant new players are attracted |
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| Hedge fund managers are moving to Dublin to avail of the fiscal attractiveness, as well as the synergistic environment created by Ireland’s position as Europe’s hedge fund administration centre, Fiona Reddan writes. Burdon Capital, Vega Asset Management and Broadstone Fund Management, are just three international hedge fund managers that have established Dublin operations over the past number of months, following in the footsteps of Pioneer Alternative Investments in choosing Dublin over more renowned hedge fund centres such as London and Geneva. And, combined with this growth from international managers, several domestic institutions, including NCB Stockbrokers have also started offering hedge fund produces to their customers. |
BBurdon Capital, Vega Asset Management and Broadstone Fund Management, are just three international hedge fund managers that have established Dublin operations over the past number of months, following in the footsteps of Pioneer Alternative Investments in choosing Dublin over more renowned hedge fund centres such as London and Geneva. And, combined with this growth from international managers, several domestic institutions, including NCB Stockbrokers have also started offering hedge fund produces to their customers.
Traditionally hedge funds were seen as too risky for the average Irish high-net worth investor, and so local fund managers shied away from offering such products to their clients. And international managers congregated in top financial centres such as London and New York.
However, as equity markets declined over the past number of years, hedge funds entered the mainstream, as investors turned to alternatives to maximise their gains, and even pension funds are now allocating a portion of their portfolios to alternative investments.
In the Irish market there are two noticeable trends emerging. The first is the creation of funds aimed at Irish investors. Focus Investments, set up by two former Davy Stockbrokers employees, Dermot Walsh and Aidan Maguire, in 2001, were the first to capitalise on Irish high net worth individuals’ desire for alternative investments, and last year were followed by NCB Stockbrokers, who set up its own fund, and Goodbody Stockbrokers, who recently established an alternatives division.
The second noticeable trend is the arrival of managers whose funds are aimed at international investors, and could just have easily set up their operations in London or Geneva, but chose Dublin instead. Big name managers such as Vega Asset Management, have followed Pioneer in setting up Dublin bases, attracted perhaps by the fiscal benefits Dublin offers, and the sectoral expertise that has developed due to the presence of so many hedge fund administrators.
Existing managers
Pioneer Alternative Investments is Dublin’s biggest hedge fund manager, with over $3 billion in assets under management. Headed up by Alberto La Rocca, the subsidiary of Italian bank UniCredito Italiano, which was set up in 1998, runs five single strategy funds out of Dublin, all of which are domiciled in Ireland and listed on the Irish Stock Exchange. Pioneer sells its funds to international clients.
On the domestic front, a number of stockbrokers are now offering hedge funds to their clients. Demand has been growing from domestic high net worth investors, boosted in part by the decreasing attractiveness of property as an investment.
Davy Stockbrokers sells the Focus Absolute Alpha 1 Fund to its high net worth clients, with a minimum investment of €125,00 in the fund. It is managed by FRM, an international hedge fund specialist.
NCB Stockbrokers launched its first hedge fund, the NCB European Select Fund, on October 15th, and to date has amassed around €38 million in investment.
The fund, which is an innovative ‘long / short, equity market neutral’ fund, is designed to generate attractive absolute returns, and is aimed primarily at NCB’s high net-worth private clients. The fund is set up as a qualified investor fund (QIF), so minimum investment is in the order of €125,000. It is a ‘system’ based fund, as opposed to a ‘personality’ based fund, and is based on the €300.
Last June KBC Asset Management transferred over €2 billion in assets to be managed from its Brussels office to Dublin. This included a €250 million hedge fund portfolio, and when the portfolio moved so too did its manager, Guy Saintfiet. (See FINANCE, ‘Day in the Life’, November 2003).
There are now four staff members dedicated to running this portfolio in Dublin, which includes a €200 million single strategy fund, and a €50 million fund of funds fund.
According to Saintfiet, KBC are preparing to launch a second single strategy long/short fund in April, and he expects that the Dublin operation will continue to grow, and develop more products. The funds are targeted at KBC’s existing clients.
He says that the proliferation of hedge fund administrators and service providers is an advantage to managers.
Goodbody Stockbrokers recently set up an alternatives division, headed up by Brian Gray, formerly of Montgomery Oppenheim, and intend launching a hedge fund shortly, pending regulatory approval.
Hibernian Investment Managers (HIM) currently have around €12 million invested in its Templar fund, but the future of this fund will depend on whether or not HIM remains open for business.
New start-ups
Just before Christmas Gerry O'Neill, previously head of fixed interest trading at ABN AMRO (Dublin) and managing director at Kyte Fund Management (Ireland), set up an 'institutional quality' alternative investment manager, Broadstone Fund Management (BFM).
BFM targets net returns of 10-20 per cent on its assets under management (AUM), and intends to launch two funds to be listed on the Irish Stock Exchange from February 2004.
The first fund, ‘Broadstone Avenir’, is a global macro fund, which will invest in a portfolio of fixed interest, equities, currencies and commodities. It will be managed by the group’s founder Gerry O’Neill, and John Foy. ‘Broadstone Mespil’ is a European long/short equities fund, which will invest in European large cap stocks. It will be managed by Jean-Paul Poggi, who was formerly responsible for managing €150 million at Sogeposte, Paris, part of the CDC Group.
BFM expect that there will be approximately €10-€15 million invested in the funds at launch stage, growing to around €30 million within three months of the launch.
Another hedge fund start-up is Burdon Capital, which is run by nine people, and is headed up by Richard Burdon, a former CEO of London based investment manager Axis Capital Management Limited. Set up in June 2003, Burdon Capital runs the Santome Master Fund, which currently has around €40 million invested in it, and which has a capacity to grow to $750 million in five years.
According to Burdon, Dublin was chosen as the location for the fund due to the hedge fund heritage already built up in the centre, due to its position as the leading European hedge fund administration centre, which has also led to legal/accounting skills developing in the hedge funds sphere. The fiscal attractiveness of Dublin, combined with its location within the EU, were also key factors says Burdon.
On the down-side, not being located in one of the leading European hedge fund centres such as London or Geneva does reduce the fund’s visibility Burdon says, as smaller investment managers don’t have the capacity to send analysts to Dublin to analyse the fund.
Most of Burdon Capital’s investors are international, but Burdon says they have been speaking to some of Ireland’s larger alternative investment managers.
Last summer, VEGA Asset Management, the US hedge fund manager, which has some €3.6 billion in assets under management, set up a second European office in Dublin, VEGA Capital Partners, having previously opened one in Madrid. David Tease, formerly of Allied Irish Capital Management, is heading up the office, which will manage the Vega Capital Partners Plus Fund.
Synergies
While Dublin may have been slow to develop a hedge fund management sector, it has taken the lead in hedge fund administration, beating Luxembourg to the title of the leading European centre. A recent survey compiled by the Dublin Funds Industry Association (DFIA) revealed that there is currently $199 billion of alternative investments being administered in Dublin, and most of the world’s top alternative investments administrators now have operations in the capital.
A synergy has emerged between Dublin’s managers and administrators, with many of these operations servicing Dublin’s hedge funds. For example PFPC International acts as administrator/custodian for KBC Asset Management, IFM (Ireland) Ltd and Barings (Ireland) Ltd are administrator and custodian respectively to NCB’s fund, BISYS Hedge Fund Services administers Burdon Capital’s funds, and Tranaut Fund Administration provides administration services to BFM’s two funds.
The listing of hedge funds on the Irish Stock Exchange is another related area that has experienced strong growth over the past number of years, with Goodbody, Davy and NCB all offering a listing advisory service, as well as a number of law and accountancy firms. |
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| Article appeared in the February 2004 issue.
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