New Funds: Start-ups with a Little Help from David Einhorn and Ziff

This is supposed to be the year for long-short equity funds, with a market that continues to reward astute stock pickers. Early-stage investors seem to agree. While it has been a tough summer for start-ups, Ryan Pedlow was able to launch the New York–based Two Creeks Capital Master Fund, a long-short equity strategy, with $1.5 billion in June.

Pedlow is a 13-year veteran of Ziff Brothers Investments, where he was a principal and equity portfolio manager, specializing in financial stocks. He left when ZBI closed its hedge fund last year after its head portfolio manager, Ian McKinnon, decided to retire. But ZBI gave its top people money from its $10 billion in assets to jump-start their own firms.

Anand Desai is another well-connected long-short equity manager who has been able to start big. His Darsana Fund launched in May in New York with $1.2 billion in assets. Desai was a founding partner of Eton Park Capital Management in New York, and led the firm’s fundamental long-short equity and structured-credit investing activities. David Einhorn’s fund of funds, Greenlight Masters, invested with Desai’s new fund in June.

“Much of [Desai’s] work has been to identify companies that stand to benefit or suffer from industries undergoing dramatic change,” Einhorn wrote in Greenlight’s first-half 2014 investor report. “At Darsana, Anand will continue to implement the strategy that made him successful across a variety of market environments.”

Desai aims to invest in ten to 20 stocks while shorting 20 to 30.

Once upon a time, before the financial crisis, global macro managers were among the biggest game hunters when it came to billion-dollar-plus launches, but today starting a macro strategy is an exercise in sheer optimism. Macro funds overall were down 0.03 percent through July, according to Hedge Fund Intelligence. Nevertheless, Robert Savage, a 23-year veteran of Goldman Sachs, and a colleague at the Wall Street powerhouse, Renato (Ron) DiRusso, who started a New York investment firm called CCTrack Solutions in January, unveiled their systematic macro Multitrack Fund in June with a modest $75 million and a lot of faith from Citic Capital in Hong Kong, the alternative investment manager owned by a Chinese partnership that includes the sovereign wealth fund China Investment Corp. Citic put up 90 percent of the seed funding, while the three partners provided the rest. Savage would like to have about $5 billion in total assets in three to five years.

“We are not trend followers. We are relative-value quantitative, and if there is volatility in a market, we usually see positive returns,” says Savage. “Our back-testing of models suggests we would be up over 5 percent through July, though we lost 47 basis points estimated on the month. We are less correlated to major asset classes like stocks and bonds and will generate a different alpha stream accordingly.”

They are also betting on a revival of foreign-exchange trading. The managers are devoting one third of the fund’s assets to an FX strategy that trades currency pairs for anywhere from two hours to two days. “If foreign exchange continues to be sidelined, there will be mediocre returns,” says Savage. “If markets heat up, we will really benefit from that.”

Savage left Goldman in 2009 and went to work as the chief operating officer for John Taylor’s FX Concepts, which was the world’s largest currency trading hedge fund until it floundered in a changing market and folded in October 2013. DiRusso also worked at FX Concepts as a portfolio manager and director of research.

“We were brought in to help change things, but it was too little too late,” says Savage, who also founded the online research platform Track.com. But Savage and DiRusso’s efforts to fix the embattled FX Concepts caught the eye of principals at Citic Capital. Danny Ong Yee, a Hong Kong-based director of the new firm, had also developed a relationship with Citic over 20 years’ working in Hong Kong and China for Goldman and later the investment firm Aktis Capital Advisory.

The three partners at New York–based Three Mountain Capital Management — CEO Andrew Hoover, CIO Kevin Chen and COO Patrick English — are planning a more modest launch of a discretionary macro fund this fall, with about $45 million that they’ve raised largely from family and friends. Chen previously worked at Morgan Stanley, then ran a multibillion-dollar fundamental global strategy at Amundi Asset Management in New York; at Three Mountain he plans to deploy the same strategy, trading ETFs and options on the most liquid domestic and foreign ETFs as well as options and futures on commodities, treasuries and currencies, when appropriate.

“Kevin looks at trends and dislocations in the market and opportunities to jump in or jump out of specific country investments,” says English of his partner Chen’s approach. “He uses options around almost every position in an effort to mitigate risk.”