News analysis: Four men in a note-trading venture
It may be better than a garage, the once-archetypal home of the start-up hedge fund manager, but nonetheless Alcantara Asset Management has chosen just a single room to begin its life running London's latest hedge fund. It employs just four people. To many observers, the surprise is seeing any firm of Alcantara's tiny size still being set up as a hedge fund manager.
The days of tiny hedge fund start-ups are supposed be over. The growing attention of financial services regulators, together with the fact that most investors in hedge funds these days are institutional investors that insist on their managers having institutional-standard systems, means the cost of complying with rules and requirements is supposed to have become prohibitive for any hedge fund manager with less than about $100m (€70m) under management, according to investment consultants and fund of hedge fund managers.
This is far more than the amount Alcantara commands, which is "a small amount", according to Sergey Grechishkin, who co-founded the firm with Russian compatriot Andrei Taskin. Moreover, conditions for raising additional assets could hardly be more challenging, with investors pulling more than $100bn from hedge funds in the last nine months.
But having received authorisation from the Financial Services Authority in December, the firm, which trades in fixed income notes, launched its first fund a month ago today. Grechishkin said the first month had gone quite well, generating a return of 1.5%, which on an annualised basis works out at about 19% a year.
The firm comprises just the two founders and a person they employ to help on non-investment matters. The trio work from a small, serviced office that is no more than a five minute stroll from London's Victoria station.
Fate and circumstance played a hand in the creation of the firm, according to Grechishkin's account. He said: "Andrei had left Capula [a London hedge fund manager with $4bn under management, which was one of the few to make money for its investors last year] because he wanted to do something a bit more entrepreneurial. I joined him in December after spending 18 months running KIT Finance, Russia's third largest investment bank, until it was nationalised. It was something we had talked about for a while."
Since December, the company has been running a managed account, capital that can be removed quickly by its providers, with the intention of launching a fund. The founders were expecting to seed this fund with money from a high net worth Russian individual, but this hope was disappointed when the wealthy individual pulled out - a common enough occurrence during the market turmoil of the last 12 months.
"We decided to go ahead anyway, "said Grechishkin, who before KIT spent 10 years in capital markets with JP Morgan and Merrill Lynch, concentrating on Russia and the Commonwealth of Independent States.
The fund focuses on the fixed income markets of Russia and the former Soviet Union and is long-biased, with about 70% of its portfolio in long positions. It is currently invested in eurobonds, to avoid the expense of hedging against the currency risk of investing in Russian roubles, Kazakh Tenges or Ukrainian hryvnias.
It is focusing on short-term maturity bonds at the moment, with 60% of them maturing within six months, because Alcantara believes the market is overbought and set to fall.
It has outsourced as much as it can, apart from the investment decisions. It employs a fund administrator, US company AIS Fund Administration, an independent auditor, Kinetic Partners Cayman, and as prime broker Austrian bank Raiffeisen.
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