CLSA teams up with ex-HSBC hedgie supremo Paul Smith
New venture Asia Alternative Asset Partners will offer working capital, seed money and distribution for both growing and rookie hedge fund managers.
The former global head of hedge fund administration at HSBC, Paul Smith, has re-appeared as CEO of a new firm, colloquially to be known as æTriple-A PartnersÆ. Smith, one of the most experienced hands in administrating hedge funds in Asia, (he built Bermuda TrustÆs platform before it was sold to HSBC), has been quietly building the new business since leaving New York at the end of last year, where he was stationed for three years.
The group's informal coming out party took place at this year's Hong Kong Rugby Sevens festival, where Smith and Triple-A had a box for friends and clients. Amidst the beer, Bloody Marys and Pimms that form a constant backdrop to Hong Kong's biggest annual party, more than one guest, drink in hand, asked if Triple-A stands for AsiaÆs Advanced Alcoholics. But no, it is shorthand for Asia Alternative Asset Partners.
Appropriately, Triple-AÆs strategy is threefold: buying equity in hedge funds, seeding and distribution.
ôFrequently this is a hedge fund managerÆs first go at running a fund and their biggest issue is simply getting going,ö Paul Smith told AsianInvestor this week. ôThat is because predominantly investorsÆ money comes from the United States and Europe.ö
Triple-A plans to take stakes of 20-30% in hedge fund asset management companies in return for seed investments of $500,000 to $2 million. It aspires to a portfolio of about 30 hedge funds over a five-year span.
CLSA will seek to raise capital for these hedge funds from its own clients. This will work is in the form of a third-party capital introductions service. Normally, such a service would incur a fee of 20% of management and performance feel on a trailing basis, but it is understood that with Triple-A, the fee will be below that level.
All hedge funds that sign up will be Asia-focused. Smith envisages that at first, 60% of its hedge funds will employ long/short strategies, with the remainder accounted for by arbitrage, event driven and the other usual hedge-fund strategies.
Smith observes that there is no shortage of candidate managers. The partners have two signed up and half a dozen more lined up so far. Those funds are still at the establishment stage, so capital raisings will come later. The hedge funds that Triple-A nurtures might be brand new, or smaller funds that may have been going for some time, but have not been able to hit the sweet spot of growth. However, Triple-A is seeking marketable funds and is not looking for funds that have languished at anaemic levels of capital and then approach them as a last resort.
Even though Triple-A has a lot of æhard hatÆ experience in the nuts and bolts of hedge fund operations, it does not see itself as a platform. It will provide advice, but not physical infrastructure, perceiving that the issue of raising capital is the primary concern to focus on.
None of the men who established Triple-A are taking a salary, and have sunk a lot of their personal wealth into providing it with a large chunk of cash with which the first seedings will take place. The individual partners alongside Paul Smith are Roger Pyrke, who is a veteran of Barclays International Fund Managers and Harcourt Advisory, and the companyÆs chairman, Hans Tiedemann, who has worked with Steel Partners and Morgan Stanley.
The firm offers two share classes. It is complex, but the structure merits explanation.
Class-A shares are the route by which investments are made in the hedge-fund asset management companies. The principals of Triple-A, CLSA and those clients that invest capital in the underlying hedge funds own one-third each of this vehicle.
Class-B shares are owned 100% by investors in the underlying hedge funds. This might well be CLSA clients, who will soon find Triple-A prospectuses dropping into their mailbox. Even though CLSA is backing this structure, it is not launching itself as a prime broker. All hedge funds will use their own chosen service providers and CLSA will just provide fund managers with middle-office support as an accounting engine. The funds invested in class-B shares will be drawn down and allocated to hedge funds over an anticipated two-year period and there is a five-year lock-up.
Those investors in class-B shares are in a sense then a fund of hedge funds, because they pay a 1% and 10% management and performance fee to class-A shareholders. However their 33% shareholding in class-A shares that they receive is a free carry that they do not have to pay for.
Messrs Smith, Pyrke and Tiedemann only get their earnings and profits through their class-A shares, which they had to buy and capitalise originally in hard cash, albeit at a different price than that at which CLSA now enters. Therefore if they pick duff hedge fund managers, whose asset management companies ultimately collapse, then they lose the ranch.
The group's informal coming out party took place at this year's Hong Kong Rugby Sevens festival, where Smith and Triple-A had a box for friends and clients. Amidst the beer, Bloody Marys and Pimms that form a constant backdrop to Hong Kong's biggest annual party, more than one guest, drink in hand, asked if Triple-A stands for AsiaÆs Advanced Alcoholics. But no, it is shorthand for Asia Alternative Asset Partners.
Appropriately, Triple-AÆs strategy is threefold: buying equity in hedge funds, seeding and distribution.
ôFrequently this is a hedge fund managerÆs first go at running a fund and their biggest issue is simply getting going,ö Paul Smith told AsianInvestor this week. ôThat is because predominantly investorsÆ money comes from the United States and Europe.ö
Triple-A plans to take stakes of 20-30% in hedge fund asset management companies in return for seed investments of $500,000 to $2 million. It aspires to a portfolio of about 30 hedge funds over a five-year span.
CLSA will seek to raise capital for these hedge funds from its own clients. This will work is in the form of a third-party capital introductions service. Normally, such a service would incur a fee of 20% of management and performance feel on a trailing basis, but it is understood that with Triple-A, the fee will be below that level.
All hedge funds that sign up will be Asia-focused. Smith envisages that at first, 60% of its hedge funds will employ long/short strategies, with the remainder accounted for by arbitrage, event driven and the other usual hedge-fund strategies.
Smith observes that there is no shortage of candidate managers. The partners have two signed up and half a dozen more lined up so far. Those funds are still at the establishment stage, so capital raisings will come later. The hedge funds that Triple-A nurtures might be brand new, or smaller funds that may have been going for some time, but have not been able to hit the sweet spot of growth. However, Triple-A is seeking marketable funds and is not looking for funds that have languished at anaemic levels of capital and then approach them as a last resort.
Even though Triple-A has a lot of æhard hatÆ experience in the nuts and bolts of hedge fund operations, it does not see itself as a platform. It will provide advice, but not physical infrastructure, perceiving that the issue of raising capital is the primary concern to focus on.
None of the men who established Triple-A are taking a salary, and have sunk a lot of their personal wealth into providing it with a large chunk of cash with which the first seedings will take place. The individual partners alongside Paul Smith are Roger Pyrke, who is a veteran of Barclays International Fund Managers and Harcourt Advisory, and the companyÆs chairman, Hans Tiedemann, who has worked with Steel Partners and Morgan Stanley.
The firm offers two share classes. It is complex, but the structure merits explanation.
Class-A shares are the route by which investments are made in the hedge-fund asset management companies. The principals of Triple-A, CLSA and those clients that invest capital in the underlying hedge funds own one-third each of this vehicle.
Class-B shares are owned 100% by investors in the underlying hedge funds. This might well be CLSA clients, who will soon find Triple-A prospectuses dropping into their mailbox. Even though CLSA is backing this structure, it is not launching itself as a prime broker. All hedge funds will use their own chosen service providers and CLSA will just provide fund managers with middle-office support as an accounting engine. The funds invested in class-B shares will be drawn down and allocated to hedge funds over an anticipated two-year period and there is a five-year lock-up.
Those investors in class-B shares are in a sense then a fund of hedge funds, because they pay a 1% and 10% management and performance fee to class-A shareholders. However their 33% shareholding in class-A shares that they receive is a free carry that they do not have to pay for.
Messrs Smith, Pyrke and Tiedemann only get their earnings and profits through their class-A shares, which they had to buy and capitalise originally in hard cash, albeit at a different price than that at which CLSA now enters. Therefore if they pick duff hedge fund managers, whose asset management companies ultimately collapse, then they lose the ranch.
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