UK follows US, spawning new hedge funds from older roots

UK hedge funds are following the US pattern as older, more established London hedge funds spawn second-generation funds, highlighting the limited supply of investment bankers willing or able to raise large sums, reports the FT on Monday.

Ross Turner, previously the youngest partner at big London hedge fund Lansdowne Partners, last week opened an office for his new venture, Pelham Capital, with the aim of raising $500m before closing to new investors.

Mr Turner’s move follows the setting up of two large funds by former senior hedge fund managers. Jabre Capital, created in Geneva by former GLG Partners star trader Philippe Jabre, now runs $4bn, while Talaris Capital, founded by Nicolas Andine from Gandhara Capital, has grown to $925m since starting trading in January, notes the report.

Last year, says the FT, five of the 20 largest European fund launches were second-generation hedge fund start-ups, according to internal analysis by a prime broker.

A handful were launched by refugees from investment banks or long-only managers, with the rest add-ons to existing hedge fund managers, the biggest of which are gaining the bulk of new assets flowing into the industry.

Mr Turner, 29, will use a similar long-short equity investment style, focused on Europe, as on the part of the Lansdowne European fund he previously ran, says the FT.
This will involve a focus on taking long-term positions in companies with steady cash flows and the potential to grow, while looking for targets to sell short.

Investors will be asked to lock up their money for one, three or five years, with the longer lock-ups receiving a discount on fees.

Mr Turner said he still saw value in European stocks, although not the increasingly popular activist targets, where hedge funds have been raising record sums.“My main concern with Europe is that there’s a lot of people chasing event and catalyst type investments,” he said. “You can see that that space is crowded.”

Bankers familiar with Mr Turner’s plans said he could be one of the larger launches of the year, pointing to the Lansdowne pedigree and seniority of his team of seven – although one cautioned that his hires were untested working together. Mr Turner is starting with four prime brokers, UBS, Goldman Sachs, Morgan Stanley and Deutsche Bank, an unusually large number for a new launch, the FT reports.

Second-generation managers have been behind many of the biggest US hedge fund launches for many years, with the best-known being the “Tiger cubs”, proteges of Julian Robertson’s TCIManagement in the 1990s.

But until recently most of the big London second-generation launches were managers who trained with US funds, not European funds. These include Chris Hohn, who created The Children’s Investment Fund in 2002 after leaving New York’s Perry Capital, and Martin Hughes, who set up Toscafund in 2000 after leaving Tiger.

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