Morgan Sze, global head of Goldman Sachs Group Inc’s principal strategies proprietary trading desk, plans to start a global hedge fund that will be 75 per cent invested in Asia, said two people with knowledge of the matter.
Hong Kong-based Azentus Capital Management Ltd, scheduled to start trading at the end of March, has attracted investment interest from Goldman Sachs partners, they said, declining to be identified as the information is private. The most profitable firm on Wall Street will not back it with money from its balance sheet, they added. Eddie Naylor, a Hong Kong-based spokesman for Goldman Sachs, declined to comment.
Banks including Goldman Sachs and JPMorgan Chase & Co are moving to comply with the Dodd-Frank financial-overhaul act in the US that prohibits them from risking capital by betting for their own accounts. Azentus is expected to start investment with $1 billion to $1.5 billion, making it the largest hedge fund startup since the financial crisis began, the Financial Times reported today, quoting unidentified marketers of the fund.
“An Asia-based hedge fund able to achieve critical mass on day one is likely to attract considerable interest from institutions,” said Frederick Ingham, Neuberger Berman Group LLC’s Hong Kong-based head of hedge-fund investments in Asia-Pacific. “This interest will naturally be exacerbated where the launch is a spin-out from an institution with a history of spawning some of the world’s best-known hedge fund groups.”
Goldman Sachs, which made about 10 per cent of its revenue from proprietary trading, decided to disband the principal-strategies group, two people with knowledge of the decision said in September.
Sze’s Asian team is expected to leave Goldman Sachs before the new fund starts trading, said the people. The fund, led by 45-year-old Chief Investment Officer Sze, started marketing in early November and met up with large investors even before that, they said. They didn’t rule out possible investments from Goldman Sachs’s asset management unit.
Azentus will employ investment strategies similar to those of Goldman Sachs Principal Strategies, said the people. Those include equity long-short, which bets on rising and falling stocks, and credit and capital structure arbitrage, which seeks to exploit mispricing between different securities issued by the same company.
“A manager with the skill-set to deploy a broad range of hedge fund strategies, rather than just equity long-short, is still relatively rare in Asia and will attract those players looking to capture the Asian opportunity set in a single investment,” Ingham said.
Equity hedge funds accounted for 72 per cent of the number of Asia-focused hedge funds and 66 per cent of their assets under management by September, according to Chicago-based Hedge Fund Research Inc.
“Asian credit and capital structure arbitrage has historically been limited to a handful of Asian managers and satellite offices or Asian desks of global multistrategy hedge funds,” said Charles Stucke, a Chicago-based senior managing director of Guggenheim Partners LLC. “The collapse of a number of those offices and desks in the 2008 crisis created trading opportunity for new firms run by experienced investors.”
About 25 per cent of Azentus’s investments will be in companies outside Asia, which are expected to benefit from demand from the region or mergers and acquisitions, said the people.
It will pick investments using a combination of bottom-up research and macroeconomic analyses, one of them added.
Sze will lead an investment team consisting of about 12 current employees of Goldman Sachs Principal Strategies in Asia, said the people. Azentus hired Roger Denby-Jones, a former prime broker at
Goldman Sachs, as its chief operating officer, people with direct knowledge told Bloomberg in October.
