Wednesday, 31 August 2016
Last updated 1 hour ago
Nov 4 2009 | 10:46am ET
Scottish investment management firm Martin Currie is well-known in the long-only space, but the firm has been managing hedge funds since 2000. As of the end of September, the firm had $19.1 billion in assets under management, with $1.3 billion of this dedicated to hedge funds. With 45 investment professionals and a staff of 250 based around the globe, Martin Currie calls itself a ‘big boutique’.
FINalternatives recently sat down to chat with Clayton Cheek, who joined the firm in September to expand Martin Currie’s hedge fund sales in the U.S. Cheek, who was previously head of institutional sales in the U.S. for Man Investments, and before that head of client development Americas for Ivy Asset Management, told us how Martin Currie managed to weather the recent financial storm and how the firm keeps its investors coming back for more.
What is the firm’s philosophy when it comes to integrating hedge funds into a portfolio? What makes Martin Currie different from other asset management firms?
Cheek: Martin Currie is purely focused on managing equity portfolios with larger institutions and funds of funds as clients, so we don’t get many questions about overall portfolio construction. That said, we are seeing clients adopt a more agnostic approach to hedge funds as compared with long-only strategies. There are funds of funds which access our China expertise via long-only products, and larger public plans which look to our hedge funds for specialist exposure in their general equity basket.
One of the unique aspects of Martin Currie is the ownership structure. We are a private company, owned and managed by full-time employees. No single employee represents more than 5% of the equity. At over US$19 billion in AUM, ‘The Big Boutique' model gives our investors the stability and flexibility of an independent, employee-owned business with the robust operational platform of a large company.
Furthermore, all our hedge fund managers must reinvest 50% of any performance fee they earn into our funds, and this investment is locked in for at least three years. Combining longer-term investment of personal capital with the ownership structure insures a stronger alignment of our interests with those of our clients.
Finally, we take a prudent approach to asset capacity. We continually monitor market liquidity for each strategy. When we see any potential impact on our ability to perform or meet our liquidity obligations to investors, we set a final capacity limit and stop accepting new business. As a result, we have never imposed redemption restrictions on any of our funds.
Last year was a tough one for the hedge fund industry. Did Martin Currie suffer investor redemptions? And if so, how did the firm weather the storm?
Cheek: Yes, we did see redemptions, and we were able to meet them all. Notably, our redemptions were not performance related. During 2008 our equity long/short strategies generally outperformed peers, and some were even positive.
As equity specialists with liquid portfolios and no gates or lockups on our redemption terms, we became a victim of clients’ need for liquidity—the so-called ‘ATM’ effect. While the redemptions were frustrating, many of our clients said they would come back to us—happily, they have.
In February this year, we actually reduced the redemption notice on our funds. With the exception of our China strategy, all our single-strategy funds are now on 30 days’ redemption notice.
The employee ownership structure and diversity of our clientele proved invaluable during the crisis. It enabled the firm to maintain a view towards the future and still use cash for strategic initiatives. For example, we launched a new sector strategy in December of 2008. Most firms weren’t able to see light at the end of the tunnel, much less invest towards future growth.
What sectors/regions does Martin Currie invest in? Which ones are currently performing the best?
Cheek: We launched our first hedge fund, a Japanese long/short equity strategy in July 2000. Today we have regionally focused strategies (Asia, Europe, Japan and China), global sector strategies (resources, energy, financials and TMT), and a market neutral strategy. Our sector and regional/country specialists will often work together to discuss trading ideas. We believe blending the insight of sector and geographical specialists enhances the distillation of ideas and increases awareness of local risk factors. This is especially evident for markets such as China and Japan.
Our Global Resources and China strategies recently won industry recognition for their performance. Both strategies did a good job of minimizing downside last year and capturing a fair share of the reversal this year. The Japan strategy has certainly demonstrated real alpha generation by delivering positive returns both this year and last.
Is the firm planning to launch any new strategies in the next six months?
Cheek: We launched a new strategy focusing on the TMT sector in December 2008. Our investment team is currently running four model long/short strategies. We have a careful and prudent approach to product development and only launch new products where we know we can deliver alpha.
Our approach is to invest in research and development and to test new ideas and strategies rigorously in a model environment. We need to prove both the concept and our ability to deliver over a minimum of 12 months before any strategy can be turned live. We also nurture the funds once they are turned live, tending not to market them to outside investors until they have a live record. Once the strategy is turned live, both the firm and the managers must invest.
What about hiring? Are you planning to bring in any new talent?
Cheek: In September this year, I joined the global hedge fund team as did Alastair Barrie, who joined as global head of hedge fund sales. Alastair joined us from RBS where he was director of institutional business.
On the portfolio management side we already have strong teams in place. However, we are increasingly being approached by managers who are thinking of moving shop. These moves are driven by concerns around the company they are currently employed by at either end of the size spectrum. Smaller firms are struggling to meet the increased operational demands from clients. And the issues in the banking sector are driving prop traders and others to look towards specialist operations such us Martin Currie.
While we may do nothing, we are in several discussions and can offer teams a strong platform and a proven business model upon which they can build multi-year success.