Goldman, Putnam Vets Prep Maiden Market-Neutral Fund

Mar 11 2009 | 2:55am ET

A trio of former Goldman Sachs and Putnam Investments executives has set up shop in Boston, readying a market-neutral hedge fund for launch this spring. Vernon Square Capital’s maiden quantitative offering will focus on U.S. small- and mid-cap stocks. 

Vernon Square was founded last year by Robert Earl, formerly of Goldman Sachs and Barclays Capital, and Richard Weed and Geoff Kelly, both formerly of Putnam.

“We saw a need in the current environment for a market neutral U.S. product,” said Earl. “This is a strategy that Rick and Geoff are very familiar with from their time at Putnam.”

Typically, the one-times levered fund will have between 100 and 150 long names and 200 to 250 shorts in its portfolio, according to Earl, who said the fund’s models are much more granular in terms of identifying opportunities.

“When we look at the universe of stocks, we immediately divide the universe into growth and value, and apply models to each of those subsets,” he said. “We’re taking advantage of market volatility in the sense that there’s a lot of dispersion between the stocks that are performing well and those that are performing poorly. We’re going to able to capture the extremes of both universes.”

On the risk management front, Weed added that if any of the fund’s shorts move up 30% relative to its peers, then the fund will cover those positions because “the market is telling us something that our models are not.”

“We're also running multiple state-of-the-art risk models simultaneously. This provides us with a detailed understanding of our overall portfolio risks,” he said.
The yet-to-be-named offering will charge a 1.5% management fee and a 20% incentive fee with a $500,000 minimum investment requirement.

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