Institutional Investor's Alpha Magazine - July/August 2008 - (Page 40)

Small Hedge Funds as an equity analyst and Todorow as a portfolio manager). They managed to raise $6 million to launch Redstone, eventually amassing more than $800 million in assets. By early last year the three partners felt the time had come to start again in what Burney calls “the normal evolution of the hedge fund business.” So they left Redstone, which is still in business, and in May 2007 launched Bluefin Investment Management. Part of their concern was that management details at Redstone were taking precedence over the actual task of investing. But they also felt that Redstone was too diversified, and they wanted a fund that was involved with fewer companies. The partners quickly discovered that bigger, more established institutional investors had little or no interest in a start-up — irrespective of the managers’ pedigrees. To many of their potential investors, the idea of yet another long-short equity hedge fund was redundant. But the partners eventually landed a seed investment of $20 million from Bear Stearns Cos. (a stake that now belongs to JPMorgan Chase & Co.) and an additional $4.5 million of their own money. A year after inception the fund was up 15 percent. “We’ve managed to keep it simple,” Burney says, explaining that instead of trying to be a fund with an allencompassing reach, Blueﬁn limits its holdings to about 50 small- and midcap companies. Its top long picks have included biotech company Cepheid, restaurateur Cosi and robotics developer iRobot Corp. (maker of the Roomba robotic vacuum cleaner). “We’ve focused on what we know and spending time on fundamentals and visiting companies,” notes Burney. Part of Bluefin’s survival also comes from keeping overhead low. Two of the ﬁ rm’s principals are its main analysts: Balcer, who specializes in technology companies and businesses in the industrial sector, and Todorow, who concentrates on health care and consumer retail stocks. Only recently did they add a research associate. “A long-short equity fund doesn’t require a lot of overhead and manpower,” explains Burney. “It’s all about being efﬁcient and limiting costs.” Blueﬁ n, like Full Circle, has also been selective in choosing investors. Instead of taking a shotgun approach to maximize the amount of money under investment, Blueﬁ n has stuck with investors they know — individuals and small institutional investors — well aware that many hedge funds have had investors call for early redemption. At the end of April, Blueﬁn’s assets stood at roughly $55 million, twice what it had started with a year earlier. The Sacerdotes’ launch of Whale Rock was lean too. They kept payroll down by outsourcing almost all of their back-ofﬁce functions to Conifer, which assigned more than a dozen staffers to the Whale Rock account. Says Alex Sacerdote: “I felt that we should concentrate on what we do best: making investment decisions and managing assets.” Photo by Shawn G. Henry for Alpha Alex Sacerdote, co-founder of Whale Rock Capital Management, sees outsourcing as one way for undersize funds to contain overhead. vestment banker specializing in media and communications properties. Stuart moved to Prudential Securities in 1996 but quit in 1999 to start Titan Outdoor Holdings, an outdoor-advertising company. After selling Titan in 2005, he decided that media business ﬁnancing was ripe for opportunity, as the market to provide loans for less than $20 million to companies that needed capital was incredibly inefﬁcient. Together with Blum, a lawyer and a former Oppenheimer manager, Stuart established Full Circle to offer ﬁnancing to media and communications companies for new development, acquisitions, reﬁnancing and recapitalization. Blum — who before joining Stuart was chief operating ofﬁcer at Fairﬁeld Greenwich Group, a $16 billion New York–based alternative-assets manager — cautions that the deck is stacked against new hedge funds starting out as small as Full Circle did: “Small funds have problems getting the right level of attention from service providers like administrators, lawyers, accountants, valuation agents and cap intro — areas where small funds need all the help they can get in order to attain better investor acceptance.” THE FOUNDERS OF REDSTONE Investment Management, a Berwyn, Pennsylvania–based long-short hedge fund firm, came from even humbler beginnings. Scott Burney, Marc Balcer and Matthew Todorow arrived at the hedge fund table in the dark days of 2002, after working together at Morgan Stanley (Burney in client services, Balcer 40 • INSTITUTIONAL INVESTOR’S ALPHA • JULY/AUGUST 2008

Table of Contents Feed for the Digital Edition of Institutional Investor's Alpha Magazine - July/August 2008

Institutional Investor's Alpha Magazine - July/August 2008 Contents Letter from the Editor Longs & Shorts Pension Corner: Mr. Big Goes Small The Good Guys: Adopt This School! Interview: Man's Great Hope Cover Story: The Gentleman Activist Strategies: The New Bankers Profile: Staying Alive Research Center: The Best of the East The Asian Sensations Alpha Bytes: Into the Light Unhedged: Commentary: Speculating on Washington

Institutional Investor's Alpha Magazine - July/August 2008

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