, managing partner of his eponymous firm Balter Capital Management
, left IIR's Liquid Alternative Strategies
event with a sense of urgency. Namely, that he'd have to get his second alternative mutual fund going sooner rather than later, as activity in the space is exploding and he wants to get to the good managers first.
| Brad Balter|
, which manages $1.2 billion for family offices and other investors in customized alternative portfolios, started running its first alternative mutual fund in January
. It was launched with $100 million in seed money from Summer Road
--the investment office of the Sackler family, which made its fortune in the pharmaceutical business. Balter said he started talking to Summer Road's David Sackler
about the benefits, such as lower fees and greater liquidity, of investing in hedge funds via mutual fund structures some time ago. Sackler then pulled some of the money from his hedge fund portfolios and gave it to Balter to manage in a mutual fund structure.
The first vehicle is the Balter Long/Short Equity
fund, which includes Millrace Asset Group
, Midwood Capital Management
, Apis Capital Advisors
and Madison Street Capital
. The second fund, which Balter anticipates launching in the fourth quarter or next January, will include one to four managers and be based on event-driven or macro strategies. Balter told MFWire
he already has the managers in mind for the next fund, which will also be funded with $100 million of Sackler family money. If both these funds do well, he could envision doing more.
Balter said he's approaching the space a little bit differently than some of the other multi-manager alternative mutual fund offerings out there. For one thing, he's going after the smaller managers (less than $500 million or so). Most of the large, well-established hedge funds already have enough capital rolling in from institutions and many don't want to give up their performance fees.
"Incentive fees are like a drug, it's very hard to get off of them," Balter said. Though he adds that "one of the biggest misperceptions in the industry is that a small manager is a bad manager."
This is actually not the case, Balter explained, many small managers outperform large ones and just happen to have trouble gaining traction. But going down the retail route could finally give them scale. Balter is also running small, concentrated portfolios of just three to four managers. That way he can give the underlying firms a larger chunk of the assets than if he were spreading the money among 20 or so.
Balter said that both he and Sackler saw the benefit of running some hedge fund strategies in mutual fund form, as many of them, especially in the long/short equity space, don't warrant the fees they're charging or long lockups, they believe. For both mutual funds, Balter will only go after hedge fund managers that can offer a mutual fund "pari passu", meaning that Balter wouldn't be giving up any performance advantages by nixing the LP structure.
And in a case of be careful what you wish for, Balter also admits that seeing daily values on the hedge funds in this portfolio makes him a little jittery.
"This is the stuff I've always wanted to see, but now that I can, I'm also like: do I really want to see that? I have a heart attack every day with daily pricing," he said.
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