Horton Point fills gap for emerging systematic managers through seeding platform
Benedicte Gravrand, Opalesque Geneva for New Managers:
Horton Point recently launched the Soundview Emerging Managers Fund I, L.P. to provide seed and acceleration capital for up to 20 external managers.
Tarpon Trading LLC, a global macro FX manager, was the fourth one to launch its program on the Horton Point incubation platform last month. A fifth one is being on-boarded right now, and the incubation fund may have around ten emerging fund managers by the end of the year. It specializes in short-term systematic managers, (i.e. very liquid strategies) including futures traders, currency traders and equity traders.
Horton Point LLC, a proprietary systematic trading firm based in New York, was launched in 2006 as a family office. It went into the seeding business early this year. "This is the seventh year that we have been in operation," Dimitri Sogoloff, founder and CEO of Horton Point, told Opalesque. "We've built a very significant infrastructure both on the execution side as well as the risk management, operations, and pretty much everything else."
He realized that there were a lot of talents out there coming from large banks and large buy side institutions, trying to start their own businesses; "They were really having a very difficult time doing it while they have the ability to generate alpha pretty consistently."
So about a year ago, he decided invest in them, but what started out as some seed investments developed into a full blown platform in which Horton Point now shares its own infrastructure.
For the platform, Horton Point initially created a hybrid seeding fund for its investors, which only opened during capital raising. This hybrid fund has two parts: in the first sub-fund, the investors can participate in the business growth of the managers (through private equity-type investments); and in the second sub-fund, the investors can have liquidity in the fund. The latter is still open to outside investors.
As part of its deal with start-up managers, Horton Point provides capital as well as operational, risk management, compliance, and marketing infrastructure. Sogoloff, who was a co-founder and president of a $2bn multi-strategy hedge fund from 1992 to 2006, and who was also involved in the launch of several successful financial technology companies, can in addition offer his strategic expertise.
"So besides the infrastructure, technology, the services of our Chief Operating Officer and our Chief Compliance Officer, we help fund managers structure the business and the vehicles properly, we make sure that they have all the right registrations and procedures in place," he explains. "One of the biggest challenges for an institutional investor who likes an emerging manager and likes a small strategy, is that emerging managers usually fail operational due-diligence. They just don't know how to build the business. This is a gap that we filled."
Sogoloff cannot give a specific ticket size as they vary, but says that "the seeding investments are meaningful enough for the manager to start having a real serious track record, which we audit at the end of each year." Horton Point’s commitment to a manager will last between three and five years, at the end of which he expects managers would be close to capacity.
There are many seeding businesses out there, he notes, but his own fills a gap in that it specialises in short-term systematic traders, which few seeders invest in.
"We are not looking for managers that can grow to billions and billions of dollars," he adds, "we’re looking for a manager that can successfully run a couple of hundred million dollars. That is the best alpha product for an institutional investor, as long as they can have several managers to choose from."