Monthly Archives: June 2012

Asset Alliance Hedgies Divvy Up Fees

Hedge fund startups need help raising capital, and one way to attract seed investors is by making them partners, Bruce Lipnick, founder and CEO of Asset Alliance, told Markets Media Thursday.
“The investor is getting leveraged return without the leverage,” he said. “And the fund manager gets
much needed capital.”
Asset Alliance provides seed capital to smaller hedge funds that are either starting out or are looking to replace capital that was withdrawn during the economic downturn. “We see an opportunity to help
reseed hedge funds, including those with liquid investments and good track records.”
Here’s a hypothetical example: A seed investor provides 25 percent of a hedge fund’s initial $100
million in capital; in return, the investor gets a 25 percent stake in the manager’s total return, including
performance and incentive fees.
A typical hedge fund manager earns two percent of the fund’s assets (the management fee) and 20
percent of the return after deducting the management fee (the incentive fee). So in this example, if the
manager achieves a 14.5 percent gross return on assets, he or she would pocket $4.5 million in fees
(two percent of $100 million plus 20 percent of the $12.5 million net return).
The seed investor would get 25 percent of that $4.5 million ($1,125,000), plus the 25 percent of the net
return on the seed investment net of management and incentive fees ($2.5 million) for a total of
The seed investor continues to get a 25 percent slice of the management and incentive fees no matter
how large the hedge fund grows; so the potential return on the initial $25


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Asset Alliance Evaluating Marketing Exporsures FoFs


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Asset Alliance Principal Components Analysis of FoFs

Creating a Fund of Funds (FoFs) is predominantly being done on a bottom-up basis with top-down overlay conducted on the strategy level. The FoFs investment team usually formulate an outlook on the different strategies that they cover and from this make allocations to the hedge funds/strategies that are considered to best reflect their outlook. The portfolio construction is fine tuned by a discretionary call on the level of comfort of having different target weights for the different strategies, for example 35% in Equity Long/ Short, 15% in Event Driven, etc. In most cases FoFs have limits in terms of how much they can allocate to a specific strategy (as well as single manager).

An important aspect that is often forgotten in the portfolio construction process is that a lot of different strategies may be driven by the same underlying factors that lead to some groups of managers performing in a similar manner.  The main reason for this may be that they use comparable trading styles and/or trade in related markets/instruments. Th fact that hedge funds are pursuing different strategies is not insurance that the returns they generate are not related in some way. There are numerous factors that influence the performance of FoFs and it can be hard to get a grasp of what these are by only analysing the aggregate return stream of the portfolio.

A useful tool in gauging these factors is Principal Components Analysis (PCA), a quantitative method that can be used to determine how many common factors influence the overall portfolio performance.It also highlights which managers affect which factors and to what extent. In addition, PCA can be indicative of the underlying diversification of a portfolio. Implicitly, it would be desirable for a portfolio’s returns to be driven by several drivers that are uncorrelated to each other as opposed to only one or two that are responsible for the bulk of the performance. The FoF manager can also gain insight into whether there are any underlying bets/tilts in the portfolio that are sub-optimal. This article goes through how PCA can be utilised in FoFs management to increase the knowledge of how the underlying funds interact. Emphasis is placed on the interpretation of PCA and less so on the underlying calculations.

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Asset Alliance CEO Bruce Lipnick Says Prop Trader Talent A Boon For Hedge Funds

With Wall Street banks facing new regulations that will severely curtail their prop trading businesses, many talented traders are weighing their options. One obvious route—start or join a hedge fund. But while it sound simple enough, not all traders are cut out to run a business. Bruce Lipnick, chief executive officer of Asset Alliance, an alternative investment firm that specializes in acquiring, seeding and growing hedge funds, explains the trend and tells us how the hedge fund industry will benefit.

Can you briefly explain the trend of traders leaving banks for hedge funds?

What we’re seeing is that Wall Street firms are changing some aspects of how they do business, and that is spurring more traders to leave the major banks and consider hedge funds. We’ve seen reports that Goldman Sachs is moving a good number of its proprietary stock traders into its asset management division. Citigroup is reportedly spinning off some proprietary trading business into a separate hedge fund group. These movements suggest that being a trader at a large bank might not be as lucrative or stable as it once was.

What are some of the main factors behind the trend?

One of the main catalysts is the recently passed financial reform law in Washington. This law limits the amount of proprietary trading and investing in hedge funds that banks can do, bringing them closer to a purely commercial model. At the same time, the big banks are reducing lines of credit for traders and making overall cutbacks to their trading businesses.

Before the financial crisis, being a proprietary trader for a major bank was a somewhat “easy” business, with unlimited capital and a good 20-30% of the trading profits. Why would a trader want to go anywhere else? Now, in the post-crisis environment and given the new legislation, there is a sense that traders are being pressured to leave, if not downsized all together, and/ banks are being forced into a non-trading business model. Furthermore, the hedge fund space is offering competitive compensation plus autonomy. At boutique operations such as Echotrade, traders can receive as 50% — or as much as 60% – of trading profits if they’re putting up some personal capital.

How will this trend affect the hedge fund industry?

One major effect is that the hedge fund space now has more access to a large pool of trading talent that it wasn’t really reaching before. There are some highly skilled and experienced traders at the major Wall Street banks – it’s not a coincidence or secret that prop trading has long been one of the more lucrative businesses for Wall Street.

Today, given the pressure that big banks are under, more traders are receptive to the idea of joining or starting their own hedge fund, which would essentially become their own private business – a chance to build equity with their talent. This means we could see more emerging hedge fund managers in need of capital, and investors will have the opportunity to invest with hedge fund managers who formerly traded the capital of some of the world’s largest banks.

What challenges and/or risks might this trend present?

The main challenge is how successfully a trader can convert themselves into a hedge fund manager. Trading and running a business are two different things, and it isn’t always that easy to make the transition. Start-up hedge funds require capital, as well as help with distribution, compliance and product development. It’s possible that many traders just want to trade – it’s what they do best – not necessarily worry about marketing their funds, managing overhead and building their platforms or working directly with limited partners or institutional investors.

How do you anticipate investors responding to this movement?

A lot of how investors respond will depend on how well traders make their transition, who they partner with in order to create a hedge fund that is in line with institutional investment standards. Investors require even emerging hedge fund managers to have a certain amount of infrastructure and processes in place before investing capital. That said, investors will also likely view this trend as a unique opportunity to potentially participate in what was previously a highly profitable, inside business for the big banks.

How do you see this trend evolving in the future?

My sense is that we will continue to see movement. There is an opportunity for the hedge fund industry to attract a substantial amount of new talent and develop emerging managers to help fill the growing demand for alternative investments. I believe that good traders can be converted into successful hedge fund managers, and that they will increasingly see value in building equity in their own fund. Meanwhile, the big banks are trying to figure out how to keep their lucrative proprietary trading business while complying with the new financial reform law. They have a limited amount of time to find a way to keep participating in this space, and we should expect to see more news on these plans in the months to come.


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Asset Alliance The Seed Investors’ Hedge Fund Opportunity

While the credit crisis has wreaked havoc on the financial industry, it has also opened up new opportunities.
With hedge funds in a state of repair and growth, institutional investors—and their advisors—have a
particularly unique chance to be “seed investors” at a time when many promising hedge fund managers need
help raising capital.
Before the credit crisis, hedge funds had a strong run from the late 1990s through the early 2000s. During
these boom years, anyone with a desk and a Bloomberg could call themselves a hedge fund manager. Now,
the credit crisis has led to a massive exit of capital, cleared out many of these “hedge funds in name only,”
and also diminished the assets of good hedge funds with real growth potential.
Meanwhile, institutional investor demand for emerging hedge fund strategies is up and growing. At the same
time, institutional investors are demanding that hedge funds implement their strategies using institutionalbased
This means that emerging hedge fund managers who want institutional money are seeking strategic capital,
as well as help with compliance, distribution, and new product development. A number of investment
management firms (I was the pioneer in founding such a firm in 1996) have popped up to fill this role,
providing the hedge funds with capital and institutional investors with a means for accessing talented
managers. Essentially, this means institutional investors can become partial owners in a small- to mid-sized
hedge fund that is looking to grow, without having to do all of the research and monitoring themselves.
The best way to think about it is as getting a leveraged-like return without the risk of leverage. As seed
investors working with an investment management firm specializing in this type of activity, institutions can
own a revenue-sharing stake in multiple emerging hedge fund managers while also participating as investors
in the fund’s performance itself. As the hedge fund’s assets grow, a seed investor will benefit from the growth
in management fee revenue. This revenue is in addition to any returns from hedge fund performance. In fact,
the potential returns from a manager’s fees can sometimes be greater than the direct performance returns of
the managers themselves.
This type of investment would especially appeal to institutional investors, such as foundations and
endowments, looking to increase their allocations to alternative managers to bridge the gap between their
funding and their actuarial needs.
As with any investment, there are some important factors to research beforehand. You will want to
thoroughly understand the investment management firm’s process for choosing and monitoring fund
managers in its portfolio. Thorough due diligence is essential, including reviewing business models, team
members, underlying fund investments, risk, and operational timelines.
The next generation of hedge fund managers is much more process-driven and institutionally minded than
pre-crisis managers.This makes sense, because institutions are the bulk of the client base. Advisors who
work with institutional clients are more than familiar with the types of questions institutions have when it
comes to investing. How do you pick your investments? How deep is your management experience? What is
your process for risk management? Can you provide transparency and separate accounts? Do you have a
qualified COO and CFO?
Hedge funds are shifting from a model where a single trader had a desk and a Bloomberg terminal, to
becoming a real business. Now is the best time to get in on the ground floor of these emerging hedge funds
of today, which could very well become tomorrow’s big institutional alternative asset management firms.

Bruce H. Lipnick
Chairman and CEO, Asset Alliance
New York


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Asset Alliance Cluster Analysis


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Asset Alliance Corporation, a global leader in alternative investments, today announced the launch of Hedge Harbor, a private placement specialist business, through two wholly-owned subsidiaries of the company, Hedge Harbor Inc. and Hedge Harbor Limited.

Complimenting the success of the firm’s initial entry into this business in the Middle East through its affiliated company, Capintro Partners, Ltd., Hedge Harbor has expanded the business into the US and Europe with offices in New York and London. As part of this effort, Bob Stearns has joined Hedge Harbor as a Senior Managing Director in New York. James Parker, Senior Managing Director of Asset Alliance International (UK) Limited, will serve as Head of International Business Development of Hedge Harbor, London. Messrs. Parker and Stearns report to Arnold Mintz, President of Asset Alliance and Global Head of Hedge Harbor.

“Our value-add differentiating factor is our 12 years of experience in identifying, seeding and allocating to leading hedge fund managers globally,” said Mr. Mintz. “Our new role of matching best of breed, select managers with appropriate investors is a logical evolution.”

“With our hands-on, consultative approach to the investment placement business, we are deeply involved in detailed analysis of the manager’s investment process, infrastructure and risk management profile,” added Mr. Mintz.

Hedge Harbor represents a select group of managers in different asset classes and strategies, including Group G Capital Partners LLC, which specializes in high yield and distressed debt investments through various investment products. Hedge Harbor will also focus on identifying and representing specialist and niche managers. The first such manager is one that focuses on the MENA (Middle East, North Africa) region.

“We are confident we can deliver managers who demonstrate a definable edge and provide alpha in what is a crowded, less profitable environment for plain vanilla strategies,” said James Parker.

Asset Alliance has invested a significant amount of resources into this effort with 20 employees split among New York, London and its Dubai based affiliate. The firm plans to expand with a representative office in California in the near future. Hedge Harbor also plans to expand into real estate and private equity, as well as acquire investment placement firms to build a leading platform to replicate their success in building a stable of hedge fund managers.

About Hedge Harbor:
With offices in New York and London, Hedge Harbor undertakes a range of activities including placement services of actively managed funds and direct investments in the alternative investment industry. The firm is able to extend its reach into the Middle East region through a Dubai based affiliated company, Capintro Partners, Ltd. Aiming to become a leader in the investment product placement business, Hedge Harbor intends to bridge the gap between global investment managers and institutional and high net worth clients throughout the world’s financial centers. Hedge Harbor Inc. is a member of FINRA. Hedge Harbor Limited is an appointed representative of Asset Alliance International (UK) Ltd., an entity regulated by the FSA.

About Asset Alliance:
Asset Alliance Corporation, founded in 1996 and headquartered in New York, is a privately held company that assists and invests in diversified alternative asset management firms, and provides specialized alternative investment products and services to institutions and high-net-worth individuals. London-based Asset Alliance International (UK), Ltd. continues to expand the firm’s global presence through manager research, joint ventures and the development and distribution of specialized products throughout Europe, Asia and the Middle East. For more information please visit


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