By WILLIAM ALDEN
May 13, 2013, 4:31 pm
Article from http://dealbook.nytimes.com/
Ewan Kirk, left, and Erich Schlaikjer of Cantab Capital Partners, whose fee structure, investing strategy and entrepreneurial spirit have generated buzz.
Ewan M. Kirk never quite fit the Wall Street mold.
As a partner at Goldman Sachs, he wore a kilt to the firm’s annual black-tie dinner in New York. After leaving Goldman, Mr. Kirk, an astrophysicist by training, set up a hedge fund in Cambridge, England, a world away from the fashionable neighborhood of Mayfair in London where many hedge funds are based.
But Mr. Kirk’s firm, Cantab Capital Partners, has been turning heads recently in London and New York with a new fund that aggressively undercuts its competitors on fees. The fund, which uses computer models to trade on trends in markets around the world, opened to outside investors in the first quarter and grew to more than $600 million by the beginning of April.
Unlike rival funds, in which the price of investing is often 2 percent of assets and 20 percent of profits, Cantab charges a 0.5 percent fee and 10 percent of profits for its new fund. That structure has generated buzz in Mayfair at a time when lackluster returns have some big investors wondering whether hedge funds are worth the expense.
“They’ve lowered the fees to a point that not everybody can afford to do,” said Phillip G. Chapple, an executive director at KB Associates, a consulting firm that advises London hedge funds. “It’s quite scary.”
Cantab is not the only fund to lower its fees. Since the financial crisis, some other hedge funds have also moved to lower the cost of investing. The Children’s Investment Fund, which is based in London, charges performance fees of 15 percent to 16.5 percent, with hurdles that must be cleared before fees are paid, according to a person close to the fund. Two funds run by Renaissance Technologies, in East Setauket, N.Y., have performance fees of 10 percent, a person close to the firm said.
About 11 percent of hedge funds in Europe charge performance fees less than 20 percent, compared with 5.7 percent of hedge funds in the United States, according to Hedge Fund Intelligence.
To Mr. Kirk, 52, who founded Cantab in 2006 with Erich Schlaikjer, a colleague from Goldman, the new product is a logical outgrowth of his primary investing strategy. With the technological infrastructure in place, it was relatively inexpensive for Cantab to introduce the new program, which takes a more conservative approach with lower volatility.
That technology puts Cantab — a relatively small firm with about 40 employees and $5.3 billion under management — in a position to shake up the market.
“Do I think that another random hedge fund is going to suddenly decide to cut their fees to a half and 10? No, I don’t,” Mr. Kirk said. “That would effectively destroy their business model.”
Run by scientists and mathematicians with ties to the nearby University of Cambridge, Cantab fosters an eccentric laboratory atmosphere. Certain devices, like a 3-D printer and a rice cooker powered by a neural network, are in the office simply to amuse the employees.
A technophile, Mr. Kirk claims to have no view on the political and economic dramas that obsess some money managers. Even his Friday lunch order is steeped in science: the office uses an algorithm to determine what type of food to buy.
But almost despite himself, Mr. Kirk is gaining recognition as a financier. Last year, Cantab’s flagship fund returned 15.3 percent when comparable funds in London suffered losses. In 2008, with the financial crisis gathering, Cantab returned 48.7 percent.
Though the firm’s record is mixed — it lost 9.2 percent in 2009 — it has attracted billions of dollars to manage, growing from just $30 million. Last November, with investors clamoring to get in, Cantab determined it had reached capacity and shut the doors on its fund.
As if to signal his arrival among the Mayfair elite, Mr. Kirk made his debut in April on a ranking of the wealthiest hedge fund managers in Britain published by The Sunday Times, which estimated his net worth at £280 million, or $433.3 million.
Born in Swindon, England, and brought up in Glasgow, Mr. Kirk did not set out to work in finance. He developed a model of gravitational radiation for his Ph.D at the University of Southampton and started a career in computer systems design. When he landed at Goldman in 1992, he devoured books on futures and options to get himself up to speed.
“I couldn’t balance my own checkbook,” he told an audience of Ph.D mathematics students at the University of Cambridge several years ago.
But Mr. Kirk learned finance quickly, rising to become the head of the strategies group in Europe, where he oversaw Goldman’s quantitative technology.
“Ewan was known to be very — at Goldman, we used the term ‘commercial,’ “ said Jay S. Dweck, a former head of equities strategies at Goldman, who was in Mr. Kirk’s partnership class. “He was good at generating profit for the business.”
Mr. Kirk’s success helped him secure a deal on his departure to pay for continued access to Goldman’s in-house software — what Mr. Dweck called the “magic that every firm wanted to try to reproduce.”
That deal, according to Mr. Dweck, who was involved in the negotiations, was “unique.” A spokeswoman for Goldman declined to comment.
Cantab said in a letter to investors in December that it had been making progress in developing its own information-technology infrastructure. As part of that transition, the hedge fund revised its deal with Goldman last year; instead of fees, Goldman now has a small ownership stake in Cantab.
As the only prominent hedge fund in a region dominated by technology companies, Cantab can make a unique pitch to university students who might not have considered finance as a career. One such hire, Tom Howat, now a partner at the firm, hurried to finish his Ph.D in mathematical biology so he could join Cantab on its first day.
During the job interview in a local pub, Mr. Kirk described Cantab as a “start-up technology company that happens to apply itself to finance,” Mr. Howat, 31, recalled in a recent essay.
That entrepreneurial spirit means Cantab can have some fun. Last year, in the Cambridge Dragon Boat Festival, a race on the River Cam, the team from Cantab finished second in the mixed division.
The team also won best dressed, outfitted in the style of Noah’s Ark with zebra, giraffe and meerkat costumes.
Such self-expression wasn’t part of the culture at Goldman, as Mr. Kirk learned the hard way.
He wore the kilt only once, “given the slightly strange looks I got turning up at a fancy New York partners’ dinner wearing a dress,” he recalled. “It certainly created a little bit of a stir.”
A version of this article appeared in print on 05/14/2013, on page B6 of the NewYork edition with the headline: Forging Its Own Path, British Hedge Fund Finds Success.
WILLIAM ALDEN
May 13, 2013, 4:31 pm
Article from http://dealbook.nytimes.com/
