Fund - Fundana

Background:

While the Geneva FoHFs landscape is well known for the large, brand-name houses, often associated with major banks, Fundana serves as a good example that independent, medium-sized firms can carve out a successful business in this industry with a very focused menu of FoHFs. Founded by Dariush Aryeh and Thomas Alessie in 1993, Fundana initially started up as a joint venture with Bank Leu, a subsidiary of Credit Suisse, until the partnership was dissolved in 2003.

As an independent entity, Fundana launched with around $200 million in assets, which quickly grew to $850 million at its pre-crisis peak. Given that the firm did not impose any gates or side pockets during the crisis, it is not surprising that it lost more than half of its assets as investors rushed to redeem capital. Nevertheless, Fundana’s asset size has made a swift recovery with current assets close to $850 million, of which the FoHF products contribute $650 million and the balance derives from the advisory side, primarily two family offices. As Thomas Alessie, chief executive officer at Fundana, asserts: “We are one of the few firms in Geneva that has been growing over the last two to three years.”


A significant share of overall assets is held by the six partners and their families. Although the firm is attracting new institutional clients, historically high-net-worth individuals have represented most of the client base. “We also tend to work with a particular group that is very Swiss-based,” says Alessie. “These are small asset managers, who were formerly private bankers, but have opened their own boutiques to manage money for private clients.”

A team of 16 oversees the asset management and research tasks. As the firm has been adding personnel to its staff, it is in the process of moving its offices to larger, more modern premises and away from the more constrained, darker offices of Geneva’s charming old town.


Fundana has devised an innovative triple-layer approach to mitigate the risk involved in selecting managers for its three FoHFs. Essentially, 10 core positions are held with seasoned managers (typically managing at least $1 billion) that Fundana has invested with for at least several years and whose proven performance is expected to drive returns. These positions generally account for 50% to 70% of the portfolio.


Emerging managers, who constitute the second layer, are experienced people that Fundana has closely tracked and monitored, and have frequently left large firms to set up their own shop. “We are looking for the best bottom-up managers to invest small amounts of capital ranging from $1 million to $2 million – sometimes on day one – but we don’t undertake any seeding deals or have special agreements with the managers,” says Michael Gerber, head of research. “In order for those managers to get up to our core positions, they must deliver outstanding performance. Then, on a monthly or quarterly basis, we will gradually keep adding to our positions.”


Over the years, Fundana has demonstrated its ability to identify managers at an early stage who went on to create top-performing funds such as JAT Capital, Cobalt Management and Sonterra Capital.


The third, or transition, layer reflects Fundana’s investment principle to be early with promising managers as well as ready to exit when their size becomes a handicap. This layer comprises emerging managers that are either moving up or else core positions that are being reduced. “Historically, we have never cut a core position to a nil position unless we see a red flag,” explains Alessie. “Instead, it’s a controlled, gradual process of cutting the core position because we’ve known the qualities of the manager over many years. However, as the fund may have become too big, the performance may be less interesting or it may be going through a difficult cycle. In any event, you could say that we’re quick to move slowly.”


Fundana’s flagship product, the Prima Capital Fund with $388 million in assets, was launched in 1993. Managed by Alessie and Dariush Aryeh, Fundana’s chief investment officer, it primarily invests in US long/short funds. In keeping with the firm’s investment philosophy, the managers avoid very large funds of $2 billion upwards, unless they have already invested at a very early stage and have enjoyed ongoing access to the lead portfolio manager.


Since 2003, Prima Capital has achieved its goal of outperforming the S&P 500, with lower volatility, by delivering a cumulative return of
xxxx%* versus 46.9% for the index. In March 2011, the fund was awarded a coveted AAA rating from Standard & Poor’s. “Performance will largely stem from 20 positions which are above the minimum 2% allocation, and this part of the portfolio will be the performance driver over the next six to 12 months,” says Gerber.


Trocadero Capital Holdings, Fundana’s other major FoHF with $224 million in assets and an annualised return of
xxxx%*, is a global multi-strategy vehicle in which long/short and event-driven strategies constitute around 75% of the portfolio. Like the Prima Capital Fund, it also maintains a strong bias towards North American funds which represent two-thirds of all the underlying managers.


“Our strong focus on US managers is due to the breadth of quality managers that we can find there,” says Gerber. More recently, however, Fundana has begun to invest in London-based managers as the market matures and more funds are launched by experienced managers. Until now, it has avoided Asian-based managers.


Although various long/short strategies have always served as Fundana’s bread and butter, the managers are looking closely at the potential in other classic fundamental strategies. “Although event-driven is one of our core strategies, we need to exercise some caution about employing this strategy,” says Gerber. “So we’re very positive about equity-oriented event-driven, but we’re negative in regard to credit-oriented event-driven as opportunities there are currently expensive.”


Although Fundana started to reduce its macro exposure last year, it still remains on the lookout for top-quality macro managers. Once again, caution comes into play as it perceives the macro strategy often performing poorly in the risk on/risk off trading environment.


Fundana’s managers believe that many Geneva-based firms folded during the crisis because investors realised that most FoHFs were not managing a portfolio, but rather functioning as service providers. “A lot of medium-sized players in banking created their own internal vehicles and, suddenly, they realised that they can’t function that way any longer,” says Alessie. “The game has changed and now only grown-ups can play.”

*For performance and contact details, contact Shaun Rajiah +44 20 7779 8367

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