Long/short equity manager Phase 2 Partners launches with seed commitment from Texas Employees Retirement System and PAAMCO Launchpad
Phase 2 Partners (Phase 2), a new financials-focused long/short equity manager investing predominately in the US and Europe, has launched with nearly USD150 million in commitments from multiple investors, including a strategic partnership with leading institutional investors the Employees Retirement System of Texas (ERS) and PAAMCO Launchpad, a subsidiary of PAAMCO Prisma.
Phase 2, founded by industry veteran Justin Hughes, will target directional investments (long and short) in traditional financial sub-sectors as well as areas in FinTech. This will include traditional asset managers, global exchanges, retail brokers, alternative asset managers, payments, bank technology, financial information, and transaction hardware/software, among others.
“It is not easy to find a cohesive team with a significant and attractive track record, one that managed capital during the GFC and the current pandemic. The fact that PAAMCO Prisma has invested with Mr Hughes since 2005 gives us great confidence. These are all hallmarks of the Launchpad partnership between PAAMCO Prisma and ERS,” says Tom Tull, Chief Investment Officer at ERS.
“The financial sector, as we define it, touches nearly every business in the world. Capital owners, allocators, lenders, borrowers and investors have serious decisions to make about their strategic approach as a result of today's rapidly changing capital market environment. We sit at the nexus of that change and seek to identify winners and losers of these dynamics. It is an exciting time for our space and approach,” says Hughes, Co-Founder and CIO of Phase 2.
Hughes has 20-plus years of financials-focused investment experience. From 2004 to 2020, he Co-Founded and was the Co-PM of Philadelphia Financial Management of San Francisco (Philadelphia), a financials-focused long/short equity firm, which grew to nearly USD700mm and was hard closed for most of that time. Hughes is creating Phase 2 with another Co-Founder of Philadelphia, Rachael Clarke, who was a partner and ran all business initiatives of the firm and will serve in the same capacity at Phase 2, which will officially spin-out as an independent, registered investment adviser in January 2021. Hughes and Clarke, who have worked together for over 20 years, will be joined by two additional senior investment professionals Andrew Del Medico and Ian McBane in addition to support staff.
“The timing and desire for a dedicated sector specialist in financials has never been better. The expected growth for the traditional financial services industry, the continuous shifts in regulatory regimes along with the global expansion of FinTech should serve as the foundation for the next frontier of investing within traditional capital markets. We believe Phase 2 is well positioned and led by an experienced team to navigate an alpha-rich environment starting in 2021 and beyond,” says Panayiotis Lambropoulos, Portfolio Manager of Hedge Funds at ERS.
"We believe Phase 2 is an exciting seeding opportunity for ERS and us,” says Andrew Gitlin, CEO of PAAMCO Launchpad. “In over 30 years of seeding, I have rarely encountered a situation where the Manager we seed has both solid experience and character as well as an audited 17-year track record to back it all up."
Phase 2 began trading proprietary capital in late 2019. With the commitments from ERS and PAAMCO Launchpad and their launch as an independent firm in January 2021, Phase 2 intends to create capacity for returning and new institutional investors.
“We strive to identify situations that combine exceptional portfolio management with marketplace need. We believe investors may face significant headwinds in generating attractive returns going forward, and we believe Phase 2 presents a compelling opportunity to capture alpha, with a focus on downside protection,” says Jeff Willardson, Head of Investments for PAAMCO Launchpad.
More broadly, despite a challenging market environment, PAAMCO Launchpad has been pleased with 2020 performance and their first seed, Cinctive Capital (Rich Schimel and Larry Sapanski). Launchpad intends to build on these results with a strong pipeline of managers and capital in 2021.