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Matt, first tell us about yourself and how you came to be involved in hedge funds.
I spent the majority of my career trading derivatives in Europe and Asia, and worked with some of the larger hedge funds as early as 1992. I then came to Credit Suisse Asset Management in New York where I was responsible for the hedge fund manager selection and portfolio creation process in the Hedge Fund Investments Group. I spent the better part of four years there before leaving the firm in November 2003 to start Mayer & Hoffman.
Can you tell us something about Eldon Mayer?
I’m very fortunate to call Eldon my partner. Eldon founded and ran Lynch & Mayer (assets under management at the firm reached $7 billion USD) before selling the company to Lincoln Financial Group. Earlier in his career, he designed and implemented the first open-end hedged mutual fund, the Hartwell and Campbell Leverage Fund. Eldon’s savvy as an entrepreneur and combined with his multi-cycle success as a hedge fund investor make him perfect to be CEO of the firm.
So what is Mayer & Hoffman Capital Advisors?
We are a brand new fund of funds (FOF) Management Company. We currently have eight people working at the firm with one product: the Mayer & Hoffman High Alpha Fund, available in both U.S. domestic and off-shore vehicles. We launch our second product, the Mayer & Hoffman Low Beta Fund, on April 1.
I want to get to your fund in a minute, but before that what was your reason for starting a new fund of funds in the first place?
Well, we looked at the FOF space and saw that the majority of products were plain vanilla - large, well diversified, and focusing on minimizing volatility while posting modest returns. We saw a real opportunity for a new product that targeted higher returns while still keeping volatility considerably lower than the overall market, albeit higher than a “typical” fund of funds.
So this is where the High Alpha Fund comes in?
Correct. Our High Alpha Fund launched with $20MM on January 1, 2004. It is a concentrated portfolio, designed to have fewer than 15 managers in total. The individual hedge funds selected for the High Alpha Fund are generally not well known. In many cases, they do not provide results to industry databases, and do not seek new investment monies. Most of them have been identified by way of our extensive network of industry contacts.
What hedge fund strategies are covered in the fund?
We currently have funds that fit under the umbrella of equity long/short, emerging markets, global macro, event driven, fixed income arbitrage, convertible arbitrage and volatility arbitrage.
Does having a small number of managers make the portfolio more risky?
Not necessarily. The key is in manager selection. The hedge funds in our portfolio are uncorrelated to one another in terms of performance and differ greatly in philosophy and execution. Of course, the most important thing is good risk control, and we make sure that all of our managers employ stringent controls to protect our investments. The individual risk controls of the hedge funds aggregate to substantial risk controls in our portfolio.
How has demand been for this fund?
Thus far, high net worth individuals and family offices have shown great appetite for this product. We are currently approaching $30MM and forecast around $200MM by year-end.
What about the institutional investor?
Long-term, our primary growth strategy is in the institutional market. We have been pleasantly surprised that a number of endowments and institutions have already expressed interest in our fund. Moreover, these “early adopters” have told us that High Alpha Fund’s characteristics compare favorably to top-tier individual hedge funds in which they are invested. Over time, we believe that institutional investors will look for funds like ours to help raise total returns in their portfolios.
Additionally, we are launching our Low Beta Fund on April 1, 2004. It will appeal to more conservative investors. This fund is also targeting higher than average returns with low volatility and will have between 18 and 27 managers. In the current interest rate environment, we believe that Low Beta can enable a reallocation away from low-yielding fixed income products and toward a less volatile investment that provides higher returns.
Thank you for telling us about your firm. Before you go, what is one hedge fund strategy to watch for 2004?
This year promises to be a transition year away from the high equity returns of 2003 and those from distressed debt. Value investors are reporting to us that most of the bargains are now well picked over. We expect 2004 and probably the next few years to favor hedge fund strategies based on expert trading approaches, especially when market volatility increases.
For further information please contact my partner, Sam Kirschner at skirschner@mayerhoffman.com.
Close-Up: Mayer & Hoffman
