Brummer Seeks Lock-Up For New Hedge Fund

Sep 5 2012 | 10:04am ET

Brummer & Partners is backing a firm founded by three of its partners that has raised US$500 million—with much more expected—for an old-fashioned hedge fund.

Carve will launch its maiden hedge fund next month. And it's asking investors for something they’ve proven wary of: a long lock-up.

Carve—which stands for cross-asset relative-value equities—investors who accept a three-year lock-up will pay the lowest fees. And they appear to be buying in: Brummer has told prospective clients that one of the main reasons hedge fund returns have lagged since the financial crisis is investors’ distate for lock-ups, and has garnered US$500 million from Swedish clients in just a month of marketing, including US$150 million from founders Bo Börtemark, Per Josefsson and Peter Thelin, veterans of Brummer’s Zenit fund.

Brummer is now taking the roadshow to the U.K. and Switzerland, where it expects to raise a significant amount of additional capital. Carve is expected to be among the largest European hedge fund launches of the year.

The fund will invest in U.S. and European stocks and bonds. Brummer, in its marketing materials, says it thinks that hedge funds are missing opportunities available in corporate debt due to its illiquidity.

"In recent years the financial markets have become increasingly short-term," Josefsson, Carve's chief investment officer, said in a statement posted on Brummer's web site. "This creates opportunities for high risk-adjusted returns if we have a mandate to take long-term decisions based on locked in capital from unit holders, and if we work with the greater part of a company's capital structure."

Carve will target annual returns of between 12% and 15% with volatility of between 10% and 15%.

Brummer will own 40% of Carve, with Josefsson, Börtemark and Thelin owning the rest. The deal will also allow Brummer's multi-strategy hedge fund to invest in Carve at a later date.

Of course, those investors still skittish about lock-ups can choose one of Carve’s other two share classes. Both allow quarterly redemptions of one-quarter of an investor’s money with Carve, one with three months’ notice and one with five days’ notice. Of course, the former comes more cheaply than the latter.

In addition to its three founders, Carve's team features Stefan Engstrand, another Zenit veteran, Michael Falken from Amaranth Advisors and Christian Fredriksson from Goldman Sachs.

Carve is expected to win approval from Swedish regulators later this month.

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