Solaise doubles assets as clients eye smaller hedge funds

LONDON Fri Apr 19, 2013 11:42am EDT

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LONDON (Reuters) - A hedge fund set up by alumni from some of the world's biggest computer-driven traders of futures markets has almost doubled assets in recent months, as investors in the sector look to smaller firms to help them ride out tough market conditions.

Solaise Capital, set up in late 2010 by former employees of Winton, Man Group's flagship AHL fund and Aspect Capital, told Reuters that inflows from a pension fund client in December and further inflows this year have lifted its assets to around $165 million.

That compares with the $86 million it ran at the end of November.

Meanwhile Man Group has seen assets at its AHL computer-driven investment fund fall to $14.4 billion at the end of last year from $21 billion a year before, while Winton Capital, one of the world's biggest funds, has also seen outflows.

In contrast, Cambridge-based Cantab Capital, run by Ewan Kirk, has seen assets jump to $5.3 billion from $1.6 billion at the end of 2011.

Solaise's inflows come in spite of two years of performance losses both for Solaise and for the wider group of so-called CTAs (commodity trading advisors) in 2011 and 2012.

Such hedge funds trade a wide variety of global futures markets, including commodities but also currency, bonds and equity instruments, but have suffered as financial markets lack the long-lasting trends they usually profit from.

Chief Operating Officer James Walker said that investors had been attracted to Solaise's trading systems and the fact it uses a variety of strategies to trade markets.

"We launched at probably the worst time you could launch in a CTA in 20 years," said Walker, formerly chief financial officer at Aspect Capital.

"Everyone understands it's been a truly dreadful run for CTAs and they appreciate we've done pretty well. (But) clearly we need to deliver absolute performance."

The average CTA lost 2.5 percent last year, according to Hedge Fund Research, while Solaise was down 1.1 percent.

Many small managers in the $2.3 trillion hedge fund industry have struggled to attract clients since the credit crisis as investors have often opted for the brand names and perceived safety of multi-billion dollar firms.

But there are signs in the computer-driven sector that investors are hunting out smaller funds that they believe have strong teams and risk management.

"People are getting away from the big names because they're not getting the transparency," said Yvonne Barker-Layton, director at hedge fund research firm Revere Capital Advisors.

"They can get additional benefits (with a small fund) of lower fees, transparency and calls to the manager whenever you want. There's been a definite change in investors' minds."

Walker said Solaise, which is based in London's plush St James's Square, differed from rivals by having less of its assets invested in the traditional strategy of following market trends. The rest is in strategies betting securities prices will revert to their mean and in other strategies he declined to disclose.

CTA performance has improved this year. Broker Newedge's CTA index is up 2.9 percent in the first three months of the year, while Winton is up 7.5 percent so far this year.

Funds also profited on Monday from the record slump in the price of gold, which by itself added 1.09 percentage points to fund performance, according a Newedge model portfolio.

(Editing by Greg Mahlich)

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