Antoine Rolland of NewAlpha Asset Management talks about how the firm changed its business model for new clients and picked up a number of innovative partnership deals along the way.
Rolland also attributes the success of his seeding vehicles (both in terms of performance and gathering assets) in part to changes to the hedge fund industry since the financial crisis. The downturn felled plenty of hedge funds in 2008-09 following weak performance or heavy redemptions. The end result was a heavily concentrated industry. This left a window of opportunity open for a new generation of entrepreneurial hedge fund managers to emerge. Many of these came from the proprietary desk exodus following the implementation of the US Volcker Rule in 2009, restricting US banks from making certain speculative investments against the interests of their customers.
The concept that large financial groups could be ‘too big to fail’ was also destroyed by the Madoff scandal, encouraging investors to look for value in smaller enterprises and, in turn, enabling new managers to surface. It is not just the availability of these emerging managers that has enabled NewAlpha to grow. Its stringent selection process is key to its success.
The sheer volume of applications for seed capital received (his team has processed more than 1,000 applications for seed capital since 2006, receiving on average more than 350 applications per year) is testimony to the “buzz” NewAlpha is creating in the hedge fund industry, Rolland says.
Rolland is looking for three qualities in the managers he considers: a manager’s capacity to make money; their capacity to market and develop the fund (the higher the seeded fund’s AUM, the greater the gain for NewAlpha); and for the manager to have a far-reaching vision.
These factors combined make NewAlpha’s equity partnership possible. Rolland adds that he likes to see managers with a real “hunger” to succeed and is careful to differentiate between potential managers and born traders.
“Often good traders do not make good managers. They are two very different jobs,” he explains. Their potential to market their own fund is often their primary weakness, he says, so he expects managers lacking this skill to invest in an excellent head of marketing.
As far as strategy selection goes, Rolland is open to ideas and the eight funds live on NewAlpha Genesis IV have “absolutely nothing in common,” he says.
Some strategies are a question of timing, he adds, noting that in 2005 there would have been no point investing in a convertible arbitrage strategy. Rolland’s final prerequisite for any emerging manager is flexibility. If investors want managed accounts or the hedge fund in a Ucits format, the manager must be willing to consider providing this. He cites the example of a manager who was struggling to break the €100m barrier with just €67m of assets under management. When he launched a Ucits version of his fund, assets jumped to €700m.
Rolland defines “emerging” as a manager with €20m to €100m of assets who wants to find a seeder who can open new doors for them. “We can seed on day one, but not for two guys operating in their dad’s garage. We would not have seeded Steve Jobs,” he concludes.