A pair of Morgan Stanley veterans has launched a New York-based long-biased hedge fund designed to dampen volatility while adding alpha.
Wavecrest Partners Fund I’s aims to reduce the frequency and severity of negative returns and enhance outcomes when markets have increased only modestly, according to a fund description. The fund is currently heavily weighted toward large-cap domestic stocks, said co-founder Jeremy Berman.
The fund made its debut in October and finished its first quarter up 3.55% but is down 1.15% in January.
“What we did was took a fairly conservative approach in the fourth quarter and generated our alpha in some of the shorter-dated, more tactical positions,” said Berman. “Our longer dated, more strategic positions have lost some of their principals but far less than the market.”
Going forward, co-founder Justin Frankel is optimistic on the fund’s success and longevity given investors’ appetite for risk-averse managers.
“The experience of the last quarter and this quarter has caused people to rethink their risk tolerance, especially fiduciaries at family offices, pensions and endowments,” said Frankel. “This is something that we feel plays into our core competencies. So we’re optimistic on the landscape for the remainder of this year.”
Frankel said family offices and funds of funds have proven to be fertile grounds for the firm’s initial fundraising efforts. Berman added that investors’ appetite for emerging managers is pretty good right now but they’re more likely to dip their toes in the water than jump head in with a new hedge fund. The fund currently manages less than $5 million in assets.
Wavecrest Partners charges a 1.5% management fee, 10% incentive fee with a $250,000 minimum investment requirement.
In addition to the fund, the pair also act as consultants and manage separately managed accounts.
Prior to co-founding Wavecrest Asset Management, Berman and Frankel worked in the Morgan Stanley’s structured products unit.