Trailblazer finds a niche in hedge funds

Hedgefunds of Australia (HFA) is at the next stage in its business development.

In less than three years it has grown from a menu of one retail and one wholesale fund to a total of 13 funds, approved and recommended by over 1,300 financial advisers and appearing on the lists of master trusts and wrap accounts such as Navigator, AM, BT and Macquarie.

In the year ahead, HFA will launch its second generation software, let loose a whole heap of business development planners, and discuss further distribution opportunities with Suncorp Metway.

It will also finalise due diligence checks with ThreeSixty, the National Australia Bank and MLC’s back-office adviser service.

“It is no longer the challenge to get on approved lists, which was a priority two years or 12 months ago. Now we want to employ extra resources so we can know the client,” HFA managing director Spencer Young says.

With its head office and investment management located in Sydney, administration in Queensland and distribution in Melbourne, Young has become the spokesperson for the group.

“It has been about building an entity. It was Spencer Young’s a few years ago but in five years time, I will be superfluous to the operation. It’s about succession planning, ” he says.

Over the past few years, HFA has concentrated on both product and capital. In January this year, the business secured a 50 per cent equity shareholding with Suncorp Metway and a six per cent holding with Lighthouse Partners.

“That we have been able to attract the interest of two financial institutions of this quality is a strong endorsement of Hedge Funds Limited’s performance, procedures and management,” Young says.

He is now also confident that the Suncorp Metway equity relationship will develop further as a distribution relationship.

“We are still a boutique. We didn’t want to be compromised and we wanted someone who would embrace what we do. Access to distribution was not on the list, but it was nice to have,” Young says.

Suncorp Metway aside, HFA has its own plans on how to beef up its distribution. Primarily it will involve putting business development managers into advisers’ offices.

“We have developed the company from a piece of paper in line with where we thought the market was going,” Young says.

While HFA planned to release only one hedge fund last year, it launched three because, according to Young, the market was ready for it. And increasingly it is becoming more so.

“Financial advisers are getting more professional and competitive. Advisers are looking for something different, they are always looking for that edge. And while they are up to speed, they do need to be taken through a learning curve,” Young says.

He says because of this, financial advisers are very interested in hedge fund strategies because they know their clients are looking for something more.

However, Young says there is a tendency for hedge funds to become a generic term rather than to refer to a number of different investment strategies that can be employed.

He says the key is to educate them on four to five hedge fund strategies and break the concepts down into asset classes, such as bonds and equities, that planners are already familiar with.

In this way, planners can learn about long/short equity strategies, merger arbitrage and convertible bond arbitrage in a less threatening environment.