Top Event-Driven Managers To Launch Hedge Fund

Jan 26 2007 | 3:09am ET

After delivering top-notch returns for several private investors over the past five years, Omni Partners is looking to expand its client base.

The two-year-old, London-based firm is launching its debut hedge fund, the Omni Global Fund, on Feb. 12 with US$50 million. The fund, a global event-driven offering, is the successor to the Hartford Growth (Trading) Fund, which employs a proprietary trading methodology developed by founding partner and chief investment officer Steven Clark. Hartford has posted average annual returns of 25.5%, and boasted an eye-popping 44.6% last year and 30.4% in 2005.

“Steve wanted to have something solid behind him, so he was building a track record,” explains Zahra Merali, the firm’s chief operating officer. The new fund, a Caymans-domiciled vehicle, has a somewhat modest target, given that performance: 15% absolute annual returns.

Last year “was a great year,” founding partner and portfolio manager Gavin Simpson says. “There was a lot of speculative money about, everyone was very positive in the markets and the merger activity going forward, and so the event-driven got very overexcited and overheated.”

To get there in the robust event-driven strategy, Simpson explains that Omni “tends to shy away from risks where we really can’t quantify any further, even if the probability is in our favor.”

“We don’t really get involved in all of those names,” he says. “We think that there’s a bit of overanalysis, that you can’t really get a whole lot more comfort on, and you get caught in some horrific moves. We tend to look for a more certain bet and then utilize our trading skills.”

For instance, the fund will not bet on certain merger and risk arbitrage situations if there are outstanding antitrust issues, “even though nobody fears there is an antitrust issue outstanding.”

Simpson acknowledges that this would normally reduce returns, and that’s where Clark’s methodology comes in.

“We tend to increase the size of the position towards the end of the deals, and really use some of our understanding of the technical forces on that to then maximize our returns,” he says. “We will look for cross-border, cross-currency, anything that’s technical, anything that’s slightly difficult and slightly out of the norm, that other people will leave alone.”

The fund will take small positions based on the universe of event-driven ideas, and then follow them for a period of several weeks. “Towards the end of the time period, we increase our position, usually maximizing it in the last two to three weeks before the deal finishes,” Simpson says. “Once we’ve made money in the endgame of the trade, we tend to use that money as a better chip to take a risk on directional bet.” If that bet goes wrong, he says, “you tend to give back the money you got in the spread, but you don’t tend to lose a lot of money.”

Clark, who set up and formerly managed the prop trading desk at Nomura Securities, and Simpson, formerly of Natwest Markets and Bankers Trust, and who is charged with overseeing Omni’s European portfolio, are joined by Scott Usher, a Goldman Sachs veteran who handles the Asia-Pacific portfolio, John Melmson, formerly of First New York Securities managing Omni’s North American portfolio, and Merali, the former Centaurus Capital controller who heads up Omni’s risk management.

The Omni Global Fund charges a 2% management fee and 20% performance fee with a high-water mark. There is a US$5 million or €5 million minimum investment requirement, with a two-year lock-up and quarterly redemptions thereafter. Credit Suisse and Merrill Lynch are the prime brokers, and BISYS serves as administrator.

“We’ve got people asking for capacity, and we hope to easily raise $200 million in the first few months,” Merali says. The Hartford Fund “wasn’t something obvious for institutional and mainstream investors…. The structure of the Hartford Growth fund isn’t as clean” as the Omni fund.

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