Tennyson Capital Partners, a self-styled “integrated provider of services to early stage hedge funds” head by former Citco Funds executive Tony Stocks, opened for business today.
Tennyson says it has identified an opportunity in the large number of hedge funds which fail in the first year, partly through lack of access to advice, marketing help and operational infrastructure. To solve this, the new firm has established relationships with suppliers of services required by hedge funds, with a view to helping hedge fund start-ups make use of best-of-breed solutions at competitive prices.
“We are offering a robust, `best of breed’ business architecture and consultancy service which saves the entrepreneur an enormous amount of time, hassle and money, allowing them to focus on doing what they do best – creating Alpha,” explains CEO Tony Stocks. “By reducing the cost in both time and money of starting a hedge fund, Tennyson Capital Partners have dramatically lowered the break-even point.”
Most importantly, Tennyson says it will help funds source capital, with marketing advice, and introductions to institutional investors, tied to a what the firm describes as its “capacity pledge” product. The firm says it has developed a “demand matrix” of both hedge fund products and investors in each product to help managers win new business and retain existing clients. Tennyson will produce customised reports for individual start-ups, defining the likely market response to any given strategy, and giving an indication of investor reaction, broken down by investor category, and manager profile.
“Unlike traditional incubators, Tennyson Capital do not take a 50 per cent equity stake in their customers’ business but require that their clients grant them a 25 per cent capacity option in any fund operated by their management company,” explains the company. “Tennyson have built a proprietary hedge fund matrix which involved building relationships with multiple alternative asset investors including private banks, high net worth individuals, fund of funds, etc. and building a CRM database around their investment principles and parameters. Tennyson have chosen a number of these to become their pledge partners. Tennyson work between their hedge fund partners and their pledge partners managing the CRM process and guaranteeing the most efficient allocation of capital. Tennyson Capital have developed an alternative solution for new entrants to alternative investments who wish to retain ownership of their companies and still benefit from a solid business infrastructure.”
Tennyson also says it will offer advice on structuring a fund, its strategy and its markets, and give new hedge fund managers access to trading systems, fund administration, banking, IT infrastructure, brokers, ECN platforms, office space and costs, bookkeeping, compliance and legal advice, stock exchange listings, and manager background checks.
Its services will include offshore fund and onshore management company structuring, including drafting offering memoranda and all legal documents relating to the fund and its relations with investors, administrators and prime brokers. Tennyson will also manage the process of securing regulatory approvals.
The provision of office space – long the preserve of prime brokers – will be made available through a partnership with 33 St James’s Square in London. Fully operational offices, including work stations, meeting rooms, secretarial support, PA services, stationery, filing systems, book-keeping, on-site IT support, operations support, and administrator middle office liaison will be provided.
In terms of IT, Tenyson aims to give clients a complete infrastructure, including networked PCs with Microsoft Office, Sage and ACT applications installed, broadband Internet access, high speed lines, front-end trade entry and order management systems, fund administrator and prime broker links, and executing broker and ECN links as well.
Hedge funds using Tennyson will also be able to insource back and middle office functions and transaction processing, prime broker services, research, legal, compliance and listing agent services available from a variety of providers at pre-negotiated rates.
Compliance services will be supplied, including regulatory applications, manuals and consultancy from start to sign-off by legal and auditing firms. Tennyson will eve negotiate insurance with joint venture partners, directors and officers, professional indemnity and office and general insurance cover, for management and fund entities.
Tennyson Capital was founded by Tony Stocks, Simon Harman and Mike Wellings. Stocks worked for Citco Group for sixteen years. When he first joined Citco in Curacao in 1985, he headed up the Soros Fund Management back office team. He launched Citco Fund Services in 1989, joining the management committee of the Citco Group in 1984. As Global Director of Fund Services, Stocks ultimately headed what became the largest hedge fund administrator, with $100 billion in assets under administration. He also negotiated the takeover of the back office and systems of Tudor Investment Co. for Citco, opened up operational offices around the globe and oversaw a growth in fund services personnel from 90 to 700. Stocks, who began started his career at Price Waterhouse as a chartered accountant, has sat on the board of a number of hedge funds, including Soros, Jaguar, Moore, Tudor, Chilton and Haussman.
Mike Wellings has spent nine of the last seventeen years in Asia in international equity sales. He started with Merrill Lynch in London, but was recruited by HSBC James Capel in 1989 to sell Asian equities in the region. He later worked in Hong Kong as Director of Institutional Sales for Paribas Asia Equity, and subsequently as Director, Head of Sales, Sales Trading and Execution for Dresdner Kleinwort Benson. In 1999 he returned to the United Kingdom, where he was latterly Executive Director for EO (UK), a start-up business where he was responsible for marketing IPOs and new issues to the European retail market. Prior to joining Merrill, Wellings held a commission in the British Army.
Simon Harman started his career in the City in 1989 as an interest rate swaps broker with Sterling Brokers. In 1991 he moved to Hong Kong where he built an Equity Derivative Broking business in the region for Tradition Financial Services, specialising in OTC Nikkei Options. After a stint at Tokyo Forex and Tullett, Harman returned to London as Deputy Head, and later Head of Equities, for Fimat International Banque. There he ran OTC Derivatives, Listed Derivatives and Cash Equities. He also instigated a programme for remote access equity and equity derivative trading.
Tennyson Capital Partners says its business model rests on five main selling points. First, a single point of access to best-of-breed suppliers, thereby reducing the average time to market. Secondly, reduced costs though economies of scale and exclusive relationships with suppliers of services required by hedge funds. Thirdly, access to robust infrastructure, to increase the odds of success. Fourthly, fund promotion and access to a network of industry relationships. Fifthly, access to a capacity pledge for capital raising from pledge partners.
Tennyson cites reports that one in ten new hedge funds failed in their first year in 2002 – an increase of 2 per cent from the previous year. The firm says the unreported number is reputed to be much higher. The main factors in their demise, says Tennyson, were poor performance, lack of marketing expertise, insufficient assets and an inefficient organisational infrastructure (Source: Eurohedge – January 03). The firm says the average cost of establishing a hedge fund is 500,000 (Source: Hedge Fund Intelligence 2002), and the average time to market between 6 and 12 months (Source: Hedge Fund Intelligence 2002) – even with one partner dedicated full time to achieving the necessary tasks. Typically, adds Tennyson, a traditional incubator would take up to 50 per cent equity stake in a start-up hedge fund.
Head of Sales, Simon Harman concluded: “We believe our service will encourage more people to start their own business and that this in turn may solve any potential capacity problems in the industry. Any start up will benefit from having a robust, tried and tested business model and reliable IT infrastructure.”