San Francisco-based Zola Capital Management recently became the eleventh money manager to join Asset Alliance since the alternative-investment shop was formed in 1996.
Zola’s specialty is equity-linked arbitrage strategies designed to exploit market volatility and price divergence between securities that are highly correlated.
Zola manages roughly $100 million in client capital, and the acquisition pushes the capitalization of the Asset Alliance and affiliated investment firms above the $2.3 billion mark.
Only last week, Asset Alliance announced its landmark tenth acquisition. The firm took an equity stake in P/E Investments, a Boston-based managed futures trading advisor with about $130 million in assets under management.
Other acquisitions are likely in the near future. Asset Alliance is continuing to interview prospective managers in the U.S. and abroad. No names have been floated, but Asset Alliance president Bruce Lipnick told HedgeWorld.com that his firm is keeping a close eye on the growth of the hedge fund business in Italy and Australia.
“Our focus has been on medium-sized managers with a strong track record,” Mr. Lipnick said. “From our perspective it doesn’t make as much sense to go after a giant established manager that has grown their assets to capacity.”
Why would a fiercely independent hedge fund-manager type want to sell his business in the first place? In many cases, would-be members of the Alliance find that they’ve built an attractive track record but need organizational support to bring their fund management firm to the next level.
“In an organization like ours, a manager can focus on what they do best – managing money,” Mr. Lipnick said. “From us they find support in infrastructure and other areas like fund raising.”
Ongoing evolutionary change in the hedge fund business brought on by an influx in pension-fund money and other institutional investors has also been a driving factor in the growth of the alliance and perceptions about the industry.
For instance, many institutions demand intensive oversight of operations and trading that medium-sized managers just aren’t equipped to deliver, which can wind up costing them an allocation. Asset Alliance meets this institutional prerequisite by having staffers sitting at terminals around the clock for the dedicated task of reviewing portfolio execution on a real time trade-for-trade.
This type of risk management allows Asset Alliance to monitor aberrational portfolio activity that might be tantamount to style drift as well as to draw a manager’s attention to inconsistencies in daily execution.
Such monitoring is meant to help managers as well as to reassure investors. But Asset Alliance does not interfere with investment decisions made by the underlying hedge fund managers.
Fund managers who join the alliance also gain the benefit of diversification. They become part of a larger group that offers a variety of investment styles and non-correlated strategies, which can be a highly favorable scenario should one’s fund or style fall temporarily out of favor with allocators.
“The alternative-investment business has really changed over the last few years from a cottage industry to something far more mainstream.” said Mr. Lipnick. “We used to have to explain who we were, but now we have managers coming to us looking for an acquisition deal. For us it’s a vindication of our business model. There were also managers that in the past we couldn’t have talked because they were — at the time — larger than we were.”
Many of the firm’s recent acquisition targets have been in the $50 million to $100 million range. No deals have unraveled.
Terms of the recent acquisitions were not disclosed.
Asset Alliance’s affiliated firm’s include: Beacon Hill Asset Management, Bricoleur Capital Management, JMG Capital Management and Liberty Corner Asset Management. Other affiliates are Pacific Assets Management, Silverado Capital management, Trust Advisors, and Wessex Asset Management. The firm’s first acquisition was Milestone Global Advisors.
The firm also manages an offshore administrator, Hedge Fund Services (BVI) Ltd.
By Pete Gallo, Editor PGallo@HedgeWorld.com