Top brand hedge funds lost big in 2011, but a unique approach to capital raising yielded growth for some.
In the new era of market volatility, hedge funds have especially experienced a roller coast ride of ups and downs. Of course, the 2008-2009 global financial crisis put to rest many hedge funds, but 2011 was also unkind to hedge funds, many of which are led by the industry’s best and brightest. John Paulson, manager of the notable Paulson Advantage Fund, declined by more than 40% in September of last year.
Yet, most market participants recognize that investing is a zero sum game—while there were losers, there were some winners. Among the winners, is Oklahoma-city based hedge fund, Covenant Financial Services, founded in 1984 as a boutique advisory firm.
The now 320 million global multi-strategy, target-return fund, up from the neighborhood of 250 to 300 million last fall, was recently renamed as Covenant Global Investors, in an effort to rebrand and celebrate the firm’s recent growth.
Steve Shafer, the firm’s chief investment officer, has had been known for making contrarian market calls. Last year, he shunned long-only, buy and hold strategies and was bullish about precious metals, diamonds, copper, and luxury real estate.
The firm, which prides itself on calling its clients “partners,” manages assets for both retail and institutional investors, through its fund strategies and separately managed accounts. The firm’s institutional focus in particular has expanded with its growth.
The key to successfully running a hedge fund undoubtedly relies on raising new assets, but Shafer emphasized the importance of preserving assets as well.
"We strive to protect our client’s capital, manage strictly to our client’s risk profile, and thirdly, we clearly and honestly communicate with them and be as transparent as possible--whether it’s good news or bad news," Shafer said, noting that influxes of new money have come from existing clients' friends and family.
Covenant is on its way to reaching $1 billion, according to Shafer. "Growing will allow us to have some efficiencies and participate in opportunities we wouldn’t have otherwise," he told Markets Media.
There can detriments when hedge funds get too big, such as deviating from their core strategies. But Shafer acknowledged that such an event is not on the near-term horizon for Covenant.
"There is a 'too big' size," he said, "But that is a long, long way off for us. Some of the most successful managers in today’s market are in the $300 million to $1 billion size."