Thu, 22/01/2004 - 04:02
Broadstone Fund Management, part of the Dublin-based Broadstone Capital Group, is preparing to launch two hedge fund strategies on the Irish Stock Exchange. In addition, the Group has developed a range of market timing tools and plans to acquire another asset management company. Gerry O'Neill unveils his strategy for the Group.
HW: What is your background?
GON: I started in markets in 1985 as a graduate trainee in fixed interest for Lloyds merchant bank, where I specifically trained as a primary dealer/market maker on UK gilts. I then moved on to James Capel/HSBC for eight years, where I was both a market maker in government bonds and No. 2 on a GBP 3 billion off balance sheet portfolio of Global fixed interest. I was then headhunted by Kleinwort Benson where I remained for a couple of years before deciding to return to Dublin in 1993 as Head of Fixed Interest Trading at ABN Amro.
In 1997 I was asked to set up Dublin's first long/short equities hedge fund by the London-based Kyte Group, and I became Managing Director of Kyte Fund Management (Ireland) in the same year.
We started with around USD 3 million under management in an Irish domiciled and listed hedge fund and made returns in excess of 30% for three years. Our first institutional investor was GAM's David Smith. Assets under management reached USD 150 million but we had difficulty with failed trades and access to stock because at that time prime brokers were not authorised in Dublin.
In 2000 I re-domiciled the fund to Cayman, appointed Goldman Sachs as the prime broker and moved the manager to London, in the process moving the investors from the Dublin fund into the new Cayman entity.
As it turned out, the Irish Regulatory authorities relented and granted prime brokers the right to offer services in Dublin halfway through this moving process!
HW: Did this lead to the formation of Broadstone?
GON: Yes, I decided to stay in Ireland to set up an independent Irish investment house aimed at delivering superior risk-adjusted returns uncorrelated to traditional investment products, which is what I have set up with Broadstone. About 75% is held by the Principals and staff and 25% by external investors and institutions. The Kyte Group have a small stake in the Group.
We appointed a Group Managing Director, David Murray, leaving me free to concentrate on trading. David was Global Marketing Manager for Shell Chemicals before returning to Ireland to assist start-up ventures, mainly in the technology sector.
The parent Company Broadstone Capital Group was founded in 2001. The Group has three subsidiaries:
1) Broadstone Fund Management (BFM ) which has received its Investment Intermediaries Act (IIA) authorisation from the Irish Financial Services Regulatory Authority (IFSRA).
BFM is positioning itself to meet the global demand for 'institutional quality' funds, with the ability to attract large-scale institutional investment and have multiple products to offer investors.
BFM will launch two hedge funds at the end of January. Both funds are to be listed on the Irish Stock Exchange from February 2004.
The first fund, Broadstone Avenir Fund is a global macro fund managed by myself and John Foy. The fund, which already had a strong two-year track record, will invest in a portfolio of fixed interest, equities, currencies and commodities.
The second fund, Broadstone Mespil Fund, is a European long short equities fund managed by Jean-Paul Poggi, which will invest in European large cap stocks. Jean-Paul was formerly responsible for managing €150m at Sogeposte, Paris, part of the CDC Group.
Both funds have a minimum investment of USD 200,000 and will make use of specific investment processes developed within Broadstone.
Both Funds have US$ and Euro share classes. Goldman Sachs is the Prime Broker and the Administrator is Tranaut Fund Administration (Dublin).
2) Broadstone Research Institute (BRI) develops, protects and patents its own intellectual property (IP) and specialises in market timing, stock selection and risk management. We have developed our own methodologies and we have proprietary IP both for front-end investment decision-making and for risk management systems.
These tools can be applied across any asset class and any time scale to ensure superior market timing, creating sustainable investment strategies without worrying about strategy drift.
3) Broadstone Trading Services (BTS) licences some of this IP to financial institutions.
In essence, we licence these IP tools to other parties to give them the confidence to allocate assets to us. We used these tools to attract early indirect capital, while we were waiting for authorisation for the funds.
We are seeking to attract mandates from four/five companies with this strategy. One example is Dolmen Securities, they have successfully used our IP tools and we are now in discussions with them with regard to an allocation to our funds.
HW: What are your reasons behind the launch and timing of the Avenir global macro fund?
GON: I wanted a portfolio that was diverse enough to allow trading opportunities irrespective of market direction and market segmentation. So my portfolio in the Avenir fund contains a diverse mix of fixed interest indices, equity indices, currency indices and some commodities. This portfolio shows me a mixture of flows and gives me the overall opportunity of a sustainable strategy. I am looking for mid-to-high teen returns with the fund and I am confident that we can achieve this with our superior and proprietary market timing tools.
HW: What other plans do you have to raise assets under management?
GON: Our Business Plan always envisaged that Broadstone would grow organically and through acquisition. As a result, we are planning to acquire an asset manager with pension assets under management, which would reduce our business risk and ensure a sustainable level of assets under management.
Given the general underperformance of pension funds, we are confident that a small exposure of around 20% of these pension assets to our investment strategy will boost their performance and encourage other pension fund assets into our funds.
We hope to announce details of this acquisition in due course.
Alternative investments are becoming more main stream and many traditional forms of fund management are considering entering this space.
HW: How are you distributing the funds and how much capital do you expect to raise with the launch of the new funds?
GON: We are tapping into our own network and we have a distribution agreement with Tara Capital in Geneva to distribute our funds.
Given the strategy I have outlined, we have already secured circa €15m and expect to have at least €25-35 million under management within the first three months after launching the funds.
HW: Do you have plans to launch additional funds this year?
GON: Yes, we intend to list additional funds over the next 18 months which will allow professional investors the option of switching between funds to take advantage of market opportunities. Each of these investment strategies will have monthly liquidity.
I would like a volatility/options fund which will probably be run by John Foy, who is a currency and options specialist and came to us from New York.
We are also seeking to attract investment talent back to Ireland. All our investment managers have equity in the group. I have put a significant portion of my equity into a pool for future investment managers and I believe that we are creating an infrastructure that can train and support talented managers in launching new funds.
HW: What are your targets for Broadstone Capital?
GON: Our business model is very simple - by the end of Year One we want to have over €70 million under management, rising to €150 million in Year Two.
Beyond these figures, we are aiming:
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