UK actuarial and financial services provider Punter Southall Group has announced a joint venture with Swiss fund of hedge funds manager Octane to create a USD400m fund of funds company, Grenfell PAI Guernsey, as part of its strategy to scale up its alternative investment operations.
Grenfell PAI seeks to take advantage of a predicted shake-up in the fund of hedge funds market. Punter Southall believes that as some funds of funds become trapped by a lack of scale coupled with lacklustre performance in a declining market, they will become targets for closure or takeover at significantly discounted prices.
The new Guernsey-based firm will take over assets previously managed by Punter Southall subsidiary PSigma Investments through its London-based P-Solve Alternative Investments division. Grenfell PAI will also take on assets from Grenfell Fund Managers, a fund of hedge funds manager recently acquired by Octane.
PSG has a 78 per cent stake in the new company and Octane 22 per cent holding. The funds managed by Grenfell PAI will be rebadged with the Grenfell name.
"Scale will be key for the fund of hedge funds business over the next six months," says the new company's chief executive Kirsten English. "We are gearing up now by investing in resources and increasing funds under management, the first step being our merger. By uniting the two companies, we have created an enlarged pool of assets and access to new geographical markets but without any appreciable increase in our cost base."
Following the merger, Grenfell PAI is reshaping its product range to appeal to a wider set of investors. Traditionally, P-Solve Alternative Investments has enjoyed a strong base of corporate pension fund investment from the UK, but the merger brings more wealth managers on board, notably from southern Africa.
The product range currently comprises the Grenfell Low Volatility Fund, a non-directional global multistrategy fund, and the Grenfell Defensive Equity Fund, a directional long/short equity focused fund, both of which are domiciled in Ireland and listed on the Irish Stock Exchange, and the Grenfell Graduate Fund, a diversified fund of funds using an asset allocation model across classes, countries, managers, investment styles and strategies.
"We have our mainstay products which do what they say on the tin, such as Low Volatility, which provides steady returns with volatility running at less than 3 per cent this year," says chief investment officer Jabir Sardharwalla.
"Now we intend to expand our Graduate endowment-style fund to add a complementary product. This fund has gained a healthy following with our South African investors but we also see strengthening appetite for this type of fund in the UK and Europe as wealth managers and pension funds seek to tap into the success enjoyed by university endowment funds in the US."
Grenfell PAI is also ramping up the distribution side of the business and looking for other potential partnerships to scale up its funds under management. "We are in no rush to do another transaction - we are just completing the integration phase of our merger - but ideally we would like to nudge the USD1bn mark sometime in the next 12 months," English says.
"We are keeping our ears to the ground for partnership opportunities with people who share our vision and outlook. This is not about simply rolling up assets for the sake of size. I predict that more companies will be looking to merge because they are sub-scale and struggling, which creates a marvellous window of opportunity for us."
Founded in 1988, the Punter Southall Group provides a range of financial services including actuarial and employee benefits consulting, independent financial advice and investment services for pension funds, corporates and individuals. The group has around 700 staff in 12 locations throughout the UK, GBP5bn in assets under management and GBP18bn in assets under advice.
Octane, which was founded in 2001, performs sophisticated qualitative and quantitative analysis to source managers and construct risk-profiled fund of hedge funds solutions for clients, and currently has more than USD1.3bn in assets under management. The company's research and risk management team is in New York and its client service teams in Switzerland and in Johannesburg and Cape Town, South Africa, while custody and administration services are independently provided in Luxembourg and Switzerland.