Global Investment Firm Teams With Minnesota Manager

Apr 7 2006 | 12:00am ET

Global alternative investment firm Investcorp, has teamed up with Minneapolis-based hedge fund manager Interlachen Capital Group to launch a multi-strategy hedge fund that will be marketed to clients globally. 

Interlachen’s nine-member investment team is headed up by Andrew Fraley, chief investment officer, and Jon Havice, chief operating officer. Deekpak Gurnani, co-head of asset management, said that Investcorp will provide the hedge fund with seed capital, marketing and distribution services, and risk oversight support.

“From a client perspective, we saw a growing demand for directly investing with single-managers in addition to [clients] putting some money with fund-of-hedge funds,” Gurnani said. He explained that another reason the firm entered the single-manager space was that it saw a steady flow of new hedge fund managers appearing on the market, and the firm felt that given its experience looking at fund-of-fund managers, it was well equipped to evaluate the talent. 

The new offering is the third hedge fund manager that Investcorp has added to its single-manager platform. The firm initially began investing in multi-manager fund-of-hedge funds in 1996, and currently has $4.2 billion in its multi-manager port- folio, $1.8 billion of which is Investcorp’s own money.

In 2004, the firm added single-manager funds in response to client demand. “We found that new managers, given the right pedigree and the right skills, were able to get better alpha compared to some of the firms with larger assets under management,” said Gurnani. “From an investment point of view, we felt it makes sense to back certain new managers to be able to provide superior alpha for us.”

The two other hedge funds that Investcorp has partnered with are Cura Captial Management, which runs a global relative value strategy and is managed by former Clinton Group executive Thomas Schnepp; and another U.S. manager in the events space, which is being seeded by Investcorp but has not yet come to market.

“The three managers happen to be U.S.-based…but we are talking to managers globally, in London and in Asia,” said Gurnani, who added that he is very excited about the talent coming out of Asia right now.

Looking To Build Up Single-Manager Platform

Gurnani said the firm plans to sign on three or four single man- agers each year, while at the same time continuing to build up its fund-of-funds program. 

Hank Murphy, principal and head of manager development, explained that the biggest factor in choosing a portfolio man- ager is the manager’s skill-set in his or her area of expertise. 

“Usually, that means they have practiced that skill set for several years, but we don’t have a hard and fast rule on the num- ber of years,” Murphy said.  He added that prior experience managing large amounts of money is more important than a manager’s current assets under management. He cited Interlachen as an example: “To begin with, they didn’t have any assets under management as Interlachen, but Andrew Fraley was the portfolio manager overseeing all of the market neutral strategies within his prior firm and he was managing $1 billion for several years,” Murphy said.

Gurnani added that one thing that differentiates Investcorp from some other firms that provide seed capital, is that although his firm is looking to form full partnerships with hedge fund managers, the managers are given a lot of flexibility in the way they handle their money. 

“We realize that the key motivation for a lot of these talented professionals to set up on their own is their independence, so we leave them on their own to run their businesses,” Gurnani said. “In general, we do not take equity stakes in their management firms. We tend to have only revenue sharing arrangements.”

Investcorp was founded in 1982 and has four lines of business: private equity investment, real estate investment, hedge funds and venture capital. The firm has $9.5 billion in assets under management.  

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