FOR U.S. AND EUROPEAN PENSION FUNDS AND other institutions, gaining access to emerging hedge fund managers in Asia is no easy task. Jeroen Tielman, former head of commerce, strategy and innovation for Cordares (now a subsidiary of Dutch asset manager APG), wants to change that. Tielman has come up with a novel approach to researching and potentially seeding managers half a world away.
In January the founder and CEO of Amsterdam-based IMQ Investment Management, which runs the hedge fund seeding vehicle IMQubator, announced that his firm was forming a partnership with Hong Kong fund-of-hedge-funds shop Synergy Fund Management. IMQ will advise Synergy on the business of seeding emerging managers; Synergy will counsel IMQ on sourcing start-ups throughout Asia. We decided to take this first step because we see an increasing number of exceptional managers emerging in Asia, and we see rising interest among investors in Asia for new talent, says Tielman, 49.
Others have noticed this expanding Asian talent pool particularly in Hong Kong, which is drawing managers from Singapore and gaining critical mass thanks to its proximity to China. Rye Brook, New Yorkbased Larch Lane Advisors, a seeder of 26 U.S. hedge funds that collectively manage $3.7 billion, is in talks with several Hong Kong start-ups. Right now we see Hong Kong in the ascendance, says head of research Kenneth Stemme.
Tielman wont be venturing into Asia alone. Synergy, founded in 2010 by one of Hong Kongs most experienced talent spotters, Eliza Lau, will provide insight into and perform due diligence on any managers that warrant a closer look. Before launching Synergy, Lau was CEO and CIO of Hong Kongbased SAIL Advisors, a fund-of-hedge-funds firm with almost $2 billion in assets under management.
The managers we look at can be from India to Australia or Japan anywhere, Lau explains. But she concedes that one of Synergys strengths is accessing managers in China. Recently, the firm helped the Shenzhen-based manager of a successful onshore hedge fund structure an institutional platform in Hong Kong and an offshore vehicle so that it could accept international capital.
IMQ brings an innovative style of hedge fund seeding to its new advisory project. Alarmed by the breakdown of trust between investors and their hedge fund managers during the financial crisis, Tielman designed a fund structure that aligned both parties interests. Instead of demanding a gross share of a start-ups revenue, which has long been standard practice, he linked investors and managers as joint equity owners in the management companies of the nascent firms. Tielman also saw to it that investors pay a management fee of only 1 percent and an incentive fee of 15 percent when they put money directly with the underlying managers.
With the institutional support of APG, which oversees assets for pension giant Stichting Pensioenfonds ABP and provided 250 million ($330 million) in deployable capital, Tielman launched IMQ in early 2009. IMQubator has since helped establish nine European hedge funds. Managers are expected to locate staff alongside IMQ Asset Management in one of Amsterdams swankiest office towers and work closely with IMQs management team.
Although IMQ doesnt provide mid- or back-office services, its staff advise on everything from regulatory compliance and risk management to capital-raising. This model strikes me as one of the most partnership-driven deals out there, says Willem Appel, co-founder and CEO of Amsterdams Roodhals Capital, whose first fund, Branta Solutions Fund, was IMQs inaugural investment.
If IMQs partnership with Synergy begins to yield promising candidates and prospective investment partners, Tielman will consider transplanting the firms investor-oriented management setup to Hong Kong. For now, though, the lanky Dutchman is in no hurry. Establishing a foreign operation should never involve a leap of faith, Tielman says, so were taking the first steps very carefully.