Fund Focus: AlphaNorth Opens Flagship To New Investment

May 1 2012 | 3:58am ET

Toronto-based investment manager AlphaNorth Asset Management has opened its flagship AlphaNorth Partners Fund to new investment.

The small-cap, long-biased hedge fund with a focus on Canadian companies was founded in 2007 by Steven Palmer, AlphaNorth president and CEO, and Joey Javier, head trader—or, as Palmer told FINalternatives in a recent phone interview, the “stock-picker” and the “trader.” The fund was ranked number one in the equity category over three years as of December 2011 by BarclayHedge.

Palmer and Javier first worked together in Toronto at AIG Global Investment Corp. where Palmer, who started his career on the sell side before transitioning to the buy side in 1997, was vice president of Canadian equities, overseeing assets worth about $350 million and Javier traded equities.

From 1998 to August 2007, Palmer managed a pooled fund focused on small-cap companies which returned 35.8% over nine years (the S&P/TSX Composite Index rose 10.0% over the same period while the BMO Weighted Small Cap Total Return Index climbed 13.0%).  Palmer also managed a successful large-cap fund.

In 2007, he and Javier decided to go it alone, launching the AlphaNorth Partners Fund. Things went well “for the first six months,” says Palmer, before everything “went to hell” with the 2008 financial crisis. After plummeting 53.3% in 2008, the fund produced impressive triple-digit returns in 2009 (160.6%) and 2010 (113.6%). Last year, a rough one for hedge funds generally, saw returns slip sharply to 2.4%, but as of March 2012, the fund was up 5.1%.

Palmer says AlphaNorth is distinct from many Canadian hedge funds because it does not focus entirely on resources. As of March, for example, while 53% of the $90 million fund was in resource equities, 35% was in technology and 12% in healthcare.

Palmer’s taste in tech stocks is eclectic: according to a 2011 Globe and Mail profile, he likes tech micro caps with “unique concepts, ranging from new ways to raise fish to language-translation software.”

Palmer says the current market offers “no shortage of great opportunities” in “all sectors,” although he considers precious metals “overhyped.” When picking stocks, he says he’s looking for an attractive risk/reward trade-off, seeking out opportunities with limited downside. The firm often buys private placements.

The AphaNorth Partners Fund launched with $13.5 million and had surpassed the $100 million mark before its performance slowed last spring and AUM dropped to $90 million. Palmer says $100 million is just about what the strategy can manage and so they’re now accepting new investments for a limited time to get back to that sweet spot.

Minimum investment is $150,000. The performance fee is 20% and management fees are 2% for Class A shares and 2.5% for Class D. The fund administrator is Harmonic Fund Services, the prime broker is Scotia Capital and the auditor is Deloitte.

AlphaNorth also manages the AlphaNorth 2011 Flow-Through LP, the AlphaNorth Growth Fund, an open-ended mutual fund, and, most recently, the AlphaNorth 2012 Flow-Through LP.

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