Ark Fund Management Ltd., a hybrid hedge and mutual fund manager, has sprung from the ashes of SciVest Alternative Strategies Inc., which had gotten burned during the summer’s credit crunch.
Toronto-based Ark has bought the remaining $16 million in retail assets from SciVest, a multi-pronged fund-management business in Toronto that has all but wrapped up its three lines of business.
SciVest had been an award-winning fund company with a good reputation. In 2004, it was named Best Relative Value Hedge Fund at the Canadian Investment Awards.
In addition to its retail fund assets, it had owned 50% of a smaller company that concentrated on quantitative investments. Then there was its institutional business, in which it was subadvisor for BluMont Capital Corp. and Arrow Hedge Partners Inc., both based in Toronto. This last line of business has been wrapped up.
A handful of private investors, including Peter Shippen, president and CEO of the new company, came together to fund the acquisition of SciVest and the subsequent start-up of Ark. “We have raised a significant amount of capital in a short time,” Shippen says.
Ark is in the process of filing a prospectus, he adds, and is looking for experienced sales help so that it can launch five funds in November. The company will offer investment products both by prospectus and by offering memorandum. Advisors can expect to see three mutual funds and two hedge funds in the mould of Toronto’s Sprott Asset Management Inc. (Institutional business is something Ark will consider later, Shippen says.)
“We’re going very mainstream,” says Shippen, comparing the offerings to those of the now inactive SciVest. “We’ve changed the name and we want to bring in good-quality portfolio managers and provide them with maximum flexibility to make investment decisions and protect capital for the end-client.”
Several managers are waiting in the wings to start investing in the new mandates and Ark is pursuing another manager. “I’m ecstatic,” Shippen says. “It will raise eyebrows when we announce our managers.”
Dan Hallett, president of Wind-sor, Ont.-based fund industry analyst Dan Hallett & Associates Inc. , is not familiar with the details behind either SciVest’s demise or Ark’s inception. But, he notes, there’s always room for more good hedge fund managers in the market.
The challenge in the marketplace is that a number of hedge funds have been launched in a relatively short period of time, says Hallett: “The same thing happens in the retail mutual fund world — if there’s an area of the market that triggers a few new product launches, they don’t all survive.”
This area can be particularly competitive. “Hedge-fund investing lures a lot of money managers because of the potential compensation and the performance fees,” Hallett adds. “But sometimes really good fund managers on the long side aren’t cut out for hedge-fund management.”
Hallett says that it’s common for a new fund-management business to step into the boots of an old one. From an operational perspective, the new company can take advantage of the existing legal and regulatory relationships. It saves time and legal fees. “You hit the ground running,” he adds.
The question was to buy or to build, says Shippen. SciVest didn’t have a lot of assets to acquire but its infrastructure was up to date. Some of SciVest’s seven funds will be wrapped together, while others will live on with new mandates. He says the company will follow the model of the successful Sprott, which runs retail funds with hedging capabilities alongside hedge funds. “Just because all of SciVest’s funds were hedge funds doesn’t necessarily mean we will be,” Shippen says.
Before forming Ark, Shippen was vice president and head of fund research at TD Waterhouse Canada Inc., starting in 2004, for which he was in charge of approving investment products for advisors at the full-service brokerage. Previously, he had held a fund research position at BMO Nesbitt Burns Ltd., at which he began his career as a summer student years before. He hopes his understanding of distribution will help in building Ark.
“There was a group of us formed to take care of investment advi-sors,” says Shippen. “It was a great opportunity for me to learn a lot about different parts of the business and to build some great relationships on many fronts. In-vestment advisors are the people I know, and the people I think I can serve best.”
@page_break@Shippen has also learned a lot about transparency and due diligence during his tenures at the banks, buzzwords that have new significance in the competitive world of hedge fund investing.
RBC Dexia Investor Services Ltd. , based in Toronto, is managing Ark’s fund administration and its back office. Mindful of the murky brand that “alternative investing” has developed, Shippen says, client assets will never pass through Ark’s accounts but go straight to Dexia.
“We’re building ourselves with big-company processes, procedures and compliance in mind,” he says. “The things that have happened at other small companies that have caused issues are just not possible here.”
Shippen, who is heading up the holding company that owns Ark, has invested in the venture, along with six investors based predominantly in Ontario — none of whom are in the fund industry.
SciVest had trouble attracting capital after a particularly bad six months in 2004, according to one of its investors, Toronto-based VentureLink LP, which has written off its investment in SciVest. “It was struggling,” says Geoff Horton, managing director of the VentureLink Financial Services Innovation Fund Inc. , a lender to SciVest.
Many hedge fund managers were directly exposed to the subprime mortgage debacle that affected markets last summer through asset-backed commercial paper, says Horton. IE
SciVest reborn as hedge and mutual fund manager
Private investors using the retail assets of the once successful SciVest to form Ark
- By: Gavin Adamson
- October 29, 2007 October 29, 2007
- 11:22