Alpha - September 2007 - (Page 76)

Fortis Investments structured credit, to introduce Cadogan product as well as long-only product,” Braman says. Geographically, the ﬁrms complement each other well. Fortis has gained access to Cadogan’s institutional clients in countries like the U.S. and South Korea; Cadogan is getting more exposure in Europe. Leaf is also looking at China, where Fortis entered into a joint venture with Shanghaibased Haitong Securities Co. in 2003. Because Fortis has a presence in Shanghai and Hong Kong, Cadogan could open ofﬁces in those cities overnight. “Five years down the line, if the world hasn’t blown up, I’d be stunned if we didn’t have a lot of [Chinese] assets,” Leaf says. With Fortis’s backing, Cadogan can launch new funds like the one it rolled out on May 1: Cadogan Tertius, a special-situations product that combines hedge funds and direct investments. In return, Cadogan is managing the ﬁve funds of funds it inherited from Fortis. The largest is the Market Neutral Fund, an approximately $1.24 billion, low-volatility, multistrategy fund with a bias toward relativevalue strategies that seeks a return of cash plus 3 percent, according to sources. Since its November 2001 inception, it has seen an average annual return of about 7 percent. Cadogan has no synergies with Fortis Group’s hedge fund administration business. But Fortis Investments does have the opportunity to get Cadogan involved in its eight single-strategy hedge funds, which collectively manage about $700 million in assets, including the $90 million Fortis D European Long/Short Fund, launched in December 2002. Cadogan has the option of investing in these funds, but Leaf says his firm will not because doing so might be perceived as a conﬂict of interest. However, he is open to managing a fund of Fortis-only hedge funds. As the alliance gains traction, Fortis is getting a boost from Cadogan’s fees. In the first half of 2007, Fortis Investments’ net commissions and fees were E201 million, a 20 percent increase over the same period in 2006. Meanwhile, the ﬁrm posted a net proﬁt of E60 million, up 22 percent from the first half of 2006. Since the end of last year, assets under management have grown 9 percent. Leaf says the recent market turbulence has had no impact on Fortis and Cadogan’s plans for growing the business together. Although the traditional multistrategy portfolios that Cadogan acquired from Fortis may have taken a hit, their performance earlier this year means they’ll probably still end up looking attractive. As for the Cadogan products, Leaf says a record July will make up for any August downturn. With Cadogan in hand, Fortis appears content to build its fund-of-hedge-funds platform from within. Wohanka and Leaf share the view that organic growth is less disruptive and more cost-effective than buying an outside firm. In the near term, Wohanka says, acquisitions will focus on two areas: small boutiques with products that complement the Fortis Investments range and expansion into such countries as India and South Korea. 8:36 AM © 2007 Knight Capital Group, Inc. All rights reserved.

Table of Contents Feed for the Digital Edition of Alpha - September 2007

Contents Letter from the Editor Longs & Shorts Pension Corner: Keeping the Faith The Good Guys: Going Public Interview: Barry Bausano - A Delicate Balance Cover Story: Cruel, Cruel Summer Profile: Phil Cooper - Alternative Flight Plan Strategies: Marshall Wace - TOPS in Its Field Profile: Fortis Investments - Banking on Alternatives Research Center: Top Equity Trading Firms Alpha Bytes: Desktop Duel Unhedged: Commentary - The Taxman Cometh

Alpha - September 2007

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