Platform Model Creating Opportunities For SHK Capital Partners
Investment fund ‘platforms’ are difficult to define due to the range of services that they offer to the investment manager; some provide only an external marketing function, some go the whole hog and offer the entire middle and back-office infrastructure alongside capital raising services, allowing the manager to focus his or her efforts on executing the fund’s strategy.
A disciple of the ‘hands-on’ approach is Hong Kong-based Sun Hung Kai Capital Partners. A wholly owned subsidiary of parent company, Sun Hung Kai & Co., SHKCP launched a platform offering in 2020; four products run by external managers (all of which were previously internal strategies offered by SHK) complement an internally managed fund of hedge funds.
Lindsay Wright, CEO, Funds Management at SHKCP says that the move to a platform model made sense because of where the rubber meets the road with regards to their beliefs in terms of performance and what they saw happening both inside and outside of their firm.
“We believe that the most successful boutiques in the alternative investment industry are independently owned. For internal teams in larger family offices, for them to grow and further develop can be challenging. So, our initial partnerships are those where we have worked with our internal teams and spun them out to form their own firm and partnered with them in the launch of their respective strategies. We fundamentally believe that independent ownership is a better model,” she said.
Access to sticky assets is the holy grail for all investment managers, and SHKCP generally commits for three years into emerging managers they decide to partner with. This decision underpins a rationale they look for when selecting new managers
“Building an alternatives business requires a runway, and we want our managers to develop and build top quality sustainable businesses. Key questions for us are: is there strong investment capability and edge? Can the founder or key principles build a business? That’s critical. Retaining great talent and building a team is important. They need time to do that effectively.”
Additionally, SHKCP has only one hard and fast rule when it comes to investing in new managers; Wright says that analysing each manager on their own merits is more important than trying too hard to create a one size fits all system.
“Many platforms are quite cookie cutter-ish – it must be this or that – but for us, flexibility is key. We work with managers as to their requirements for capital and services. However, if we partner with a Hong Kong-based manager then they must relocate to our office, we strongly value a close-knit ecosystem. All of our partnership managers tend to have their own regulatory license, so we work with them on the respective services they wish to access from SHKCP, i.e., what are their needs and where are they in terms of their development? Flexibility is key for us,” she said.
That notion of flexibility is required of managers, too, especially in terms of how they structure their offerings.
“Managers should be wrapper agnostic; they should be focused on how investors want the strategy delivered to them. If they want it in Cayman vehicle, they should deliver that, or a separate account, deliver that,” said Wright “When I think about partnering with these groups, I want them to think that way. Increasingly, clients are looking at interacting in a range of ways, so the flexibility approach works both ways for us.”
The fund of hedge funds product is a multi-strategy product with an Asian bias. Allen Sing, previously at CITIC, joined SHKCP in January to manage the product alongside research analyst Jonathan Cheung; Portfolio construction-wise, Sing doesn’t have a particular bias from an exposure-perspective – Latitude Alpha has allocations to managers based in North America, Europe and Asia which trade an array or underlying exposures – more so, Sing’s experience has taught him that looking closely at how the talk translates to the walk is more important when selecting hedge fund managers.
“Many hedge fund managers you meet for the first time will sound smart and impressive,” he said. “But carrying out research over a period of time can tell a different story. A manager for example may only be strong on the long side and be unable to offer much value in terms of hedging. Another manager may have excellent research ideas, but have difficulty implementing the trades, which typically require a higher degree of skill on the short side. That makes the verification process critical; we need to be able to verify that the manager can actually do what they say they do. Transparency is an important part of the process,” he said.
Why offer single manager hedge fund strategies and a fund of hedge fund product?
“The stage in their hedge fund lifecycle will typically differ. The managers that we seed are new as independent entities, but many of the managers in the multi-manager product have been around for years. Many of them are closed to new investors, particularly those in Asia, because they have reached capacity. We can access these closed managers and, as early investors, get favourable fees for our investors in the process,” said Sing.
SHKCP’s early investors in their platform products are largely local high net worth investors looking for an a la carte menu, something platform businesses tout as a benefit of working with them. As more and more investors are looking to position themselves to stave off the effects of an anticipated rise in inflation, SHKCP is seeing interest from pensions in Europe as well as Asia. Wright says the multi-strategy approach is one that should be sustainable in the medium to long term.
“Investors are looking to allocate more to alternatives – public / private debt and equity – this is driven by the search for returns and the benefits of the illiquidity premium,” she said. “The multi strategy platform model can provide everything an investor needs for their alts allocation in one place."
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