Wednesday, May 4, 2011

Quebec Absolute Return Fund?

On Tuesday, the Caisse de dépôt et placement du Québec released a statement, HR Strategies Announces the Launch of a Québec Absolute Return Fund:
HR Strategies, a Québec investment management company, announces the establishment of the Fonds Stratégique à Rendements Absolu HRS (SARA Fund), which will invest its assets with Québec absolute return managers. The Fund will be available to Québec and Canadian investors.

HR Strategies will act as General Partner of the SARA Fund, which benefits from an initial investment of $175 million. The main investors are the Caisse de dépôt et placement du Québec ($60 million), Fondaction CSN ($55 million), Fonds de solidarité FTQ ($50 million) and the Régime de retraite de la CSN ($10 million). More investors may be added in the coming months.

This new fund will rely on fundamental analysis to select managers, based on their expertise, reputation and rigour. The Fund principal objective is to deliver steady, healthy returns to its investors — aiming for an average annual return of 5% above the Treasury Bill rate of return.

"In Québec, we have managers who are just as qualified as those of other major financial centres. The SARA Fund will not only enable companies and managers to develop, but will also allow investors to reduce their portfolio risk and obtain attractive and stable returns," said René Perreault, President of HR Strategies.

"We favour managers who are known for their qualitative strategies and have proven fund management track records," said Mr. Perreault. "The portfolios will be completely transparent. We will invest in highly liquid strategies, with managers who will trade primarily stocks, bonds and liquid futures contracts."

"The Caisse's participation in the SARA Fund will both provide the institution with attractive returns relative to the level of risk and boost the development of Québec's financial expertise. HR Strategies, a partner the Caisse knows well, has an interesting road map and is renowned for managing absolute return funds of funds — in addition to offering very reasonable management fees," said Mario Therrien, Senior Vice-President of Hedge Funds at the Caisse de dépôt et placement du Québec.

"This fund will have a developmental effect on Québec's financial industry. It will stimulate activity in the sector. Many features, including its transparency and manager compensation structure, are based on the best practices of socially responsible finance, helping position Montréal, Québec's largest city, on this forward-thinking idea," said Geneviève Morin, Chief Financial and Corporate Development Office at Fondaction CSN.

"In addition to relying on the talent we have in Québec's financial sector, the SARA Fund promotes the emergence of new portfolio managers and, at the same time, supports Québec entrepreneurship in this promising sector. In line with our mission, this initiative also meets the objectives of the major Montréal Finance project," said Gaétan Morin, Executive Vice-President of Investments at the Fonds de solidarité FTQ.

HR Strategies is a member of the Hedge Fund Standards Board (HFSB), an international, London-based organization that aims to implement the industry's best practices and standards, particularly about governance, transparency and manager/investor alignment of interest.. The Caisse de dépôt et placement du Québec is also a member of the Board's Investor Chapter, which includes 30 institutional investors from Europe, Asia and North America. Mr. Therrien of the Caisse also serves on the HFSB Board of Trustees.

About HR Strategies
HR Strategies Inc. (HRS) is an independent investment firm formed in 1993 and based in Montreal, Canada. HRS manages portfolios of hedge funds and other alternative investment strategies for institutional and high net worth investors. HRS is regulated by the Autorité des marchés financiers (AMF).

About the Caisse de dépôt et placement du Québec
The Caisse de dépôt et placement du Québec is a financial institution that manages funds primarily for public and private pension and insurance plans. At December 31, 2010, it held $151.7 billion in net assets. As one of Canada's leading institutional fund managers, the Caisse invests in major financial markets, private equity and real estate. For more information: www.lacaisse.com.

About the Fonds de solidarité FTQ
The Fonds de solidarité FTQ helps drive our economy. With net assets of $7.7 billion, as at November 30, 2010, the Fund is a development capital investment fund that channels the savings of Quebecers into investments in all sectors of the economy to help further Québec's economic growth. The Fund is a partner, either directly or through its network members, in 2,052 companies. With its 577,511 owner-shareholders, it has helped, on its own or with other financial partners, to create, maintain and protect 150,133 jobs. For more information, visit www.fondsftq.com.

About Fondaction CSN
Fondaction CSN invests in Québec SMBs to contribute to the maintenance and creation of jobs in Québec from a sustainable development perspective. It manages $800 million in assets, representing retirement savings from more than 100,000 shareholders. It is the financial partner of about 100 companies and partner and specialized funds in every industry and the social economy. www.fondaction.com.

I'm glad to see the Caisse and others are promoting Quebec's financial sector. The Ontario Teachers' Pension Pan has seeded several Ontario funds of funds and hedge funds. It's about time we started promoting Quebec's talented managers.

I managed to contact Philippe Dubois, Vice-President at HR Strategies who is currently in Europe. I asked him about the terms they will be offering and he had this to share:

...the Fund will invest with managers at various stages of their development (emerging and established); as such, we have decided not limit ourselves to a single business model (equity/top line revenue share/ rebate/ etc.). I look forward to discussing this when I return.

Should pension plans be in the seeding game? It depends where and how deep their knowledge of the strategies and managers they're funding. I'm all for it because it helps local managers develop their business and then go solicit funds from global pension and sovereign wealth funds.

I told Philippe that I know of five seasoned managers in Montreal who can easily deliver T-bills + 5% and even higher with low risk. All liquid and transparent strategies. There are a few kinks to be ironed out with this new fund (one of them is any potential conflicts of interest), but I'm sure this will be a positive force for Quebec's financial sector, which has been in decline for years. I for one fully endorse the SARA Fund and hope more initiatives like this one are in the works.

***Addendum: Established Quebec absolute return funds***

Below, I add a list of a few established alpha managers in Quebec:

1) Sectoral Asset Management: Founded in 2000, Sectoral Asset Management Inc. is an industry-leading specialist in managing global investment portfolios in the healthcare sector.(mostly long-only but can offer portable alpha on their benchmark which they have outperformed over the years. Sectoral won a mandate from Norges Bank Investment Management, the investment management firm of the government of Norway.

2) Gestion Critallin: Run by Marc Amirault, one of the most experienced convertible bond arbitrage managers in Canada, this is one of the best hedge fund secrets in Canada. Cristallin is also exploring expanding into more liquid strategies, and my bet is that it can easily become a top Canadian and global multi-strategy fund.

3) Hexavest: An investment firm that specializes in equities and tactical asset allocation for institutional clients. This is the old Natcan investment management team run by Vital Proulx, one of the best tactical asset managers in Canada. This firm is a success story and they are already managing billions and can expand considerably (might become Canada's Bridgewater).

4) Fjord Capital Management: Montreal-based Fjord Capital is a specialized currency manager for institutional investors. Excellent team and they specialize in both alpha and hedging strategies.

5) Perseus Capital Inc.: Run by Jean Turmel, whom I had the pleasure of interviewing last year, this fund is a global macro fund specializing in liquid alpha strategies, including L/S equity. With the recent addition of my former supervisor at PSP Investments, Pierre Malo, the fund will also look add currency alpha strategies. These are two veterans of Quebec's investment management community with the strongest process in the business and high risk-adjusted returns. They are currently looking for a few strategic partners (contact Pierre at pierremalo.inc@gmail.com).

6) Inncocap Investment Management: Innocap offers hedge fund managed account solutions, using a conservative approach to hedge fund investing with a strong emphasis on transparency, liquidity, asset control and risk management.

7) Fiera Sceptre: Run by Jean-Guy Desjardins, arguably the best entrepreneur in Quebec's investment management industry, this is a leading-edge independent investment management firm focused on delivering competitive and tailored multi-style investment solutions to a diversified clientele of investors.

8) Formula Growth: A specialist in U.S. emerging growth stocks, Formula Growth manages Formula Growth Fund for individual investors, Formula Unit Trust for tax-exempt institutional investors and the Formula Growth Hedge Fund. Formula Growth is an independent Canadian company owned by its employees, who are all investors in the Formula Growth Fund and the Formula Growth Hedge Funds.

9) AFC Capital: Don't let their website fool you. AFC Capital is an investment firm specializing in (L/S) North American equities and is regulated by the AMF. The fund is an equity market neutral fund with a fundamental process based on earnings projections. They deliver high risk-adjusted returns and did not lose money in 2008. (Key contact: Alexandre Gagnon, VP Risk Management and Finance at agagnon@afccapital.com).

10) Majestic Asset Management: Run by David Bilodeau and Denis Paquette, Majestic is a Commodity Trading Advisor (CTA) registered under the US Commodity Exchange Act and is a member of the National Futures Association (NFA). Majestic’s flagship fund, the MAJESTIC GLOBAL DIVERSIFIED FUND, offers investors exposure across a wide range of sectors and commodities such as grains, food and fibers, meats, energy products, metals, currencies, stock indices and global bonds.

11) Plensa Pineault: A Quebec-based capital management company. The firm aims to capitalize on trends in futures markets globally through the use of a proprietary quantitative model and a systematic approach to investing.

12) Sigma Alpha Capital: A privately held firm which was founded in May 2003. Ownership of the firm is divided among its four senior partners: André Marsan, Luc Lapointe, Jean-Sébastien Garant and Jacques Authier. Their managers use futures to structure the portfolios in order to obtain positive returns over the medium term, regardless of the economic and financial outlook.

13) Swing Capital:
Swing Capital Inc. is an alternative investment manager whose broad purpose is to preserve and increase portfolio wealth by offering a unique uncorrelated alternative investment program in managed Foreign exchange to qualified investors. Swing Capital Mission is to offer a unique investment vehicle targeting 15-20% yearly returns while maintaining low to negative correlation to both standard and trend following portfolios. The Swing Capital Team is composed of 3 partners: Both of Swing Capital Managing partners, Mr. Bettan and Mr. Nahmany possess unique core skills in the financial industry. Both have acquired an extensive Foreign Exchange trading expertise in major centers around the world (Montreal, London, and Toronto).

***More Quebec Absolute Return Funds to Follow***

14) Planum: Run by Caroline Bédard, CFA, this is a Long-Short North American REIT fund. Ms. Bédard has extensive experience in this niche strategy as she managed money at Pressima when she worked at the Caisse.

15) Altervest:
Run by Geneviève Blouin, CFA and CMT, this fund uses derivatives to exploit market inefficiencies. Ms. Blouin is an exceptional manager deliver high risk-adjusted returns. In her own words:
If I had to describe what I do I would say that I actively manage an equity portfolio using listed options very conservatively to enhance returns and exploit niches untouched by large institutional players. It is an exclusive strategy as it is not scalable. The limited liquidity of options keeps large institutional players out of my turf allowing me to produce high risk adjusted returns with a very low VAR.
16) Galliant Capital Management: Run by Ian Shaffer, CFA, this is a North American Long-Short Equity fund which uses rigorous earnings models to pick long and short positions. Mr. Shaffer has previous experience with Atticus, a well known US hedge fund.

17) RDA Capital: Run by Francois Magny,
RDA Capital is a Montreal based alternative investment management boutique where world class research and development are combined with exacting application to generate superior non-correlated investment returns. RDA employs a blend of experienced investment expertise and academic talent coupled with state of the art technology to achieve superior risk adjusted returns in all market conditions.

***IMPORTANT UPDATE***

Please note some funds like AFC Capital have closed while others are struggling to stay afloat after the carnage in Q3 2011. Do your due diligence carefully before investing in any fund.

I'm pleased to announce that my friend François Trahan of Wolfe Trahan & Co. has started his hedge fund in Montreal, Trahan Capital, and is currently raising funds. François is one of the best strategist on Wall Street and there is a reason why top funds pay big bucks for his research, he's great at analyzing and forecasting markets. You can contact him directly at FTrahan@wolfetrahan.com for more information.

I'm also pleased to announce that Quebec's two leading female alpha managers, Caroline Bédard and Geneviève Blouin are joining up to run a a Long-Short North American REIT fund. When it comes to delivering real alpha, these sharp ladies can teach the testosterone filled hedge fund world a thing or two. They deserve seed capital not because they're women, but because they're damn good at what they do. Contact Geneviève at gblouin@altervest.ca for more information.

Finally, Yves Martin has commenced operations at his fund, Akira Capital, a relative value commodity arbitrage fund. For more information, contact investorrelations@akiracapital.com.

Below, listen to a September 2011 PBS Wealthtrack interview with François Trahan explaining why the old economic models are failing. Great interview but investors should also read the book he co-authored with Kathy Krantz, The Era of Uncertainty.

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