A senior investment strategist at GESB has left the $9 billion fund to set up his own global long/short hedge fund, and is seeking an incubator to provide seed capital of US$15-20 million.
Ralph Leib, formerly senior investment strategist at the Western Australian fund, left GESB on August 11 and is hoping to launch his hedge fund, 613 Capital, by the end of the year.
The fund will target a “very conservative” 10 to 15 per cent return in line with its aim to deliver consistency with low risk, Leib said.
It will focus on quality companies and adopt a global thematic approach to determine sustainability of earnings and revenue growth, “looking back at least five to 10 years to determine predictability of the business”.
“Predictability is looking backwards and sustainability is looking forwards,” Leib said.
“When you put those together you find quality businesses that you want to go long and you also tend to find weak industries that you want to go short. The real focus of the fund is risk management, because it’s one of the key things that’s misunderstood by the industry, which is very focused on return.”
613 Capital is being established out of the
US, but Leib said there was a strong possibility that the entity would be brought onshore once a strategic partner came on board.
His investment philosophy acknowledges that risk is the most important variable, and that “risk is what you buy, return is what you get”.
“The return vector is absolutely irrelevant, it’s what risk you took to get that return that’s absolutely critical,” he said.
“What people don’t understand is that on average equities over time only give you about 10 per cent nominal return. When you’re receiving returns much greater than 10 per cent there are only two ways to achieve the average, which is either the market moves sideways for a very long period of time, like it did from 1960 to 1985 or from 1996 to 2007, or the market has a very large drawdown like it did in 1929 to 1932 or from 2007 to 2009.”
Leib is yet to finalise the fund’s fees, but said he recognised the investor pressure on hedge fund fees following the global financial crisis.
“I am aware that the industry in hedge fund land is under pressure and that the old 2 and 20 may not be appropriate any more,” he said. “At this time I think that’s the baseline; between 2 and 20 and 2 and 15, somewhere around there.”
Leib described investing in long-only funds as “effectively playing tennis when a person can only hit a forehand”.
613 Capital will utilise options, which he said can add 2 to 3 per cent additional return per annum to the return, while the long side of the portfolio will invest in companies with high dividend yields, potentially adding another 2 to 3 per cent.
Leib has spent 12 years in the institutional investment industry, five of those at GESB, initially as manager investments, and latterly as senior investment strategist.
Prior to that he spent seven years in