Thursday, 29 September 2016
Last updated 16 min ago
Mar 28 2007 | 3:52pm ET
A new commodity hedge fund is going to great lengths to reassure its investors that their money is safe with them. Such is the nature of doing business when your lead portfolio manager is best known for losing more than $6 billion in one fell swoop.
Solengo Capital Advisors, founded by the infamous Brian Hunter and three other veterans of collapsed hedge fund Amaranth Advisors, makes clear in a marketing brochure* that the sort of shenanigans that led to the Amaranth disaster is not how it plans to do business.
“Each fund contains margin restrictions and maximum capital restrictions to prevent serious liquidity and contagion risks from arising,” according to the brochure. “Violation of restrictions eliminates ALL capital locks for investors in the fund,” enabling investors to redeem their investments after a week without penalty.
In other words, if a certain portfolio manager returns to his friskier ways, he’s not only putting the firm at risk, he’s putting his share of the management fee on the line (portfolio managers are entitled to half of the 2% Solengo collects). What’s more, the brochure promises investors the ability to “meet periodically with portfolio managers” and “customized risk/return metrics to each investor.”
If that’s not enough reassurance, you can simply keep your money out of Hunter’s hands. Solengo plans to launch “a fund representing every commodity class” in Goldman Sachs Commodity Index, as well as several others, covering power, international gas and liquids, and freights. Each fund will be a stand-alone portfolio, with Hunter responsible for “commodities volatility.”
According to the offering memorandum outline, none of the Solengo sub-funds can trade more than 10% of maximum margin for five consecutive days in anything other than its primary commodity strategy, or exceed 10% for the quarter.
The brochure also details Solengo’s “highly sophisticated” risk controls, something apparently lacking at Amaranth, on what it hopes will be a multi-billion dollar portfolio.
The Solengo funds will charge a 20% performance fee in addition to the 2% management fee, with a two-year lock-up (as long as everyone follows the rules, of course) with 60-day notice for redemptions thereafter.
Hunter is joined in the new venture by portfolio managers Matthew Calhoun and Shane Lee, who worked for him as traders at Amaranth’s Calgary, Alberta, office. Karl Koster, who serves as head of systems engineering for Solengo, also worked at Amaranth, as senior quantitative architect for risk management.
Solengo has set up shop in Calgary and Greenwich, Conn., just a few miles down the road from Amaranth’s former home.
* We had the brochure up in full but Solengo's lawyers asked us to remove it. We don't like to think of ourselves as weak and spineless when it comes to bending to the wishes of the entities we cover, alas, not wanting to invite a lawsuit, we caved. Besides, they did ask nicely.