[HONG KONG] Stephen Diggle, co-founder of a hedge-fund firm whose assets expanded more than 1,000-fold before it returned investors' money, is reentering the industry with a plan to back managers and traders seeking a new career in money management.
Mr Diggle's Singapore-based Vulpes Investment Management opened the multistrategy Kit Trading Fund, led by former Merrill Lynch & Co trader Michael Downer, on Dec 1, according to an e- mailed statement.
It plans to have as many as 12 managers trading for Kit over the next six to 12 months, using investments by Vulpes and the money the managers themselves can bring in, Mr Diggle said in a telephone interview from Singapore on Tuesday (Dec 8).
Mr Diggle helped build Vulpes's predecessor, Artradis Fund Management, into a hedge-fund firm that grew from US$4.5 million in 2002 to US$4.8 billion in 2008, before returning money to its investors a few years later. Now he's seeking to provide what he describes as a hybrid between a hedge-fund "hotel" and an incubator for traders leaving global banks, he said.
Financial firms around the world are shrinking their proprietary trading desks and asset managers are paring back amid declining returns. "The vast majority of these guys don't have any capital backing them," said Mr Diggle. "There are fewer options to go and a greater pool of talent looking for a home in Asia because the hedge-fund industry probably has contracted more than in Europe and the US." Artradis made more than US$2.5 billion of realized gains for investors between August 2007 and December 2008, with its volatility hedge funds profiting from seesawing markets, according to the statement.
It returned investor money in 2011 after asset-price swings subsided, leading to losses. Vulpes now mostly invests money from its staff in assets from German property to kiwi farms.
The Kit fund will not raise capital from outside investors initially, said Mr Diggle, although it plans to do so after contributions from Vulpes's partners reach US$20 million.
Mr Diggle is stepping into the business as large institutions, which control the bulk of industry assets, have favored big and established managers after the 2008 global financial crisis, starving smaller startups of capital.
HS Group in Hong Kong and Dymon Asia Capital (Singapore) are also backing managers seeking to start their own hedge funds.
Kit is looking for traders whose strategies have low correlations to the markets and are less volatile. Those include equity long-short managers betting on rising and falling stocks, traders looking to profit from price differences between related securities, and those who use computers to trade currencies and fixed-income securities, Mr Diggle said.
It will provide support services, allowing traders to join with only investment staff. "Over time, we hope to see the best of these traders spin off to form their own hedge funds," Mr Downer said in the statement.
Unlike bigger incubators, which put pressure on managers to expand assets, Kit will be happy to retain indefinitely good traders whose strategies can accommodate only limited assets or who do not have the ambition to run large funds, Mr Diggle said.