Drake Asset Management, a $3 billion hedge fund in the United States and one of the largest players in the alternative fixed-income space, has tied up with Taipei-based fund-of-hedge-funds manager Prudence Advisory to access Taiwanese investors. Drake was founded in 2001 by Anthony Faillace and Steven Luttrell, veterans of bond giants Pimco and Blackrock. The firm specializes in multi-sector fixed income investing and its absolute-return fund returned 12.2% for investors in 2004.
Prudence recently launched and seeded a fund of hedge funds entirely composed of Drake's fixed-income hedge fund. Hou Chun-li, Prudence's vice president, says he expects to raise $10 million by the end of the year from his Taiwanese investor base, which includes institutions, such as banks and insurance companies as well as high net-worth individuals.
"We're pleased to have tied up with Prudence in order to gain further access to Taiwanese investors," says Richard Horodeck, Drake's managing director responsible for Asian product and client development. "We saw the fund-of-hedge-funds approach as a more innovative and preferable model compared to the third-party commission-based distributor route which was the other option available to access Taiwanese investors. We see this as a long-term relationship as our interests and Prudence interests are perfectly aligned."
Hou explains that the advantage of the fund-of-funds structure for Taiwanese investors is that they are able to get access to a world-class hedge fund on terms more suitable to them. "For instance, investors in the Prudence fund will be able to invest with smaller minimum amounts.
In the future, our fund will also be able to provide a greater level of liquidity," Hou says. Prudence will look to use this model to tie up with other leading hedge funds looking to gain access to Taiwanese investors.
Horodeck explains that Drake's move into Taiwan is part of a wider initiative to diversify the firm's investor base. "Currently Asian investors contribute to around 4% of our assets but we expect this number to grow. Any world-class manager needs to have global investors," says Horodeck.
"At the moment most of our Asian investment is from Japan, which has traditionally be the most active in the alternative space. But we're also paying increasing attention to Greater China, Singapore and Australia."
Horodeck points out that while Drake has traditionally dealt with institutional sized investors making significant allocation, in Asia his strategy will be to focus on building trust and relationships. "In Asia our goal is to connect with asset gatherers and family offices."
Japan however is a different story for Horodeck, who has direct relationships with Japanese institutional investors. Horodeck was one of the early pioneers involved in opening up the Japanese institutional market to hedge fund investing. He started his career as an attorney to Japanese institutions advising on structuring their hedge fund investments and later set up a consulting arm, HedgeJapan, an organization dedicated to providing Japanese institutions with more accurate information about hedge funds. "Japanese investors are now beginning to move away from intermediaries, such as third-party marketers and fund of hedge funds and are willing to work directly with single managers who are more institutionalized and known to them," he says.
Horodeck says that Drake has plans to set up an Asian office in Tokyo to service its Asian clients, but will probably not do so until next year. "Setting up an office in Asia is not always the immediate solution to servicing Asian clients best. The Asian office needs to be well integrated with the headquarters in order to add value to Asian clients, or else it can act as a bottleneck frustrating clients as well," cautions Horodeck. "This can be a challenge with the time difference and physical distance."