09.09.2011
By Terry Flanagan

Joint Venture Offers Institutions Rising Hedge Funds

Two investment arms join forces to seed early-stage hedge funds, and hope to offer managers fit for an institutional appetite.

U.S. based Northern Lights Capital joined forces with U.K. based Hermes BPK to launch a new investing platform designed to identify and provide access to early stage hedge fund managers. The two asset managers are targeting institutions, notably pensions, to take interest in their seeded hedge funds.

“We engage in a robust due diligence process across the dimensions of investment strategy, team background, organizational design, fund terms, risk management and operations,” said Art Zaske, portfolio manager with Northern Lights. Zaske highlighted that managers selected have strong “investment ability and execution,” as well as robust downside protection and “commercial viability,” or a manager’s alignment of interest with the end investor and willingness to “communicate effectively and transparently”.

Northern Lights and Hermes BPK’s particular interest in seeding start-up hedge funds stems from the theory that these funds are more likely to “offer new and unique strategies due to a diminished incentive to just go with what has worked before,” according to Zaske.

“We believe smaller managers may offer excess returns over larger, older funds due to the ability to react faster to areas of opportunity and risk given smaller funds under management,” Zaske said. “Newer hedge funds offer a relatively better opportunity to be responsive and flexible to an institutional investor’s needs around investment strategy execution and reporting.”

The two firms came together possessing skill sets deemed “complimentary” to one another, noted Zaske.

“The asset management industry private equity expertise of Northern Lights is a natural complement to the hedge fund of funds expertise of Hermes BPK. Identifying outstanding investment teams and engaging with them to establish and grow institutional-quality businesses is what Hermes BPK and Northern Lights do on a daily basis.”

Together, Zaske noted that the main initiatives for both firms will be to “engage with managers to facilitate growth, structure well-aligned and sustainable economic partnerships, and engage with managers to improve their operations and make them more attractive to institutional investors.”

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