Cogo Wolf Asset Management, a $100 million fund of funds based in San Francisco, is throwing a lifeline to struggling hedge fund managers willing to let it take control in exchange for allowing the managers to hang on to a piece of the action.
It works like this: Clients and assets are moved from the hedge fund in question to Cogo Wolf, which promises to pay out a negotiable percentage (the firm won’t specify the range) of its fees to the battered hedge fund manager, who gets to stay on as adviser, receiving an annuity in perpetuity.
“I jokingly call it the detox safe house,” says Rachel Minard, president of Cogo Wolf, adding that the idea is for her firm to act as more of a house sitter than a permanent overseer. Under certain circumstances the manager can eventually regain control.
David Gold, head of hedge fund research for New York–based consulting firm Watson Wyatt Worldwide, calls what Cogo Wolf is doing “a kind of consulting or advisory position for portfolio managers who are in trouble.” The firm targets single-manager, single-strategy funds that are 100 percent employee-owned — outside partners complicate things — with less than $350 million in assets. Minard says the response has been strong but won’t disclose how many deals have been signed.
More of these types of arrangements seem likely, given the high costs of operating a fund. “We’ve seen a maturation of the hedge fund market, and the downturn has accelerated that and made it harder for the smaller players,” notes Timothy Clark, a partner at New York–based law firm Proskauer Rose.
John Godden (see “Moving on from Madoff”), CEO of IGS Group, a London-based advisory firm, has seen similar deals on both sides of the Atlantic — and says there is more interest on the part of acquirers than on that of the acquired. Cogo Wolf’s model, of course, begs the question of why an investor would follow a struggling manager. Godden says it could work only with funds of funds, “where the money’s slightly stickier.”
