Vantage Asset Management, a Toronto startup that launched a long/short relative value and M&A arbitrage fund on March 1, has hit the ground running with launch assets of C$40 million ($38.9 million)—thought to make it one of the biggest hedge fund launches in Canada over the past couple of years. An established Canadian fund manager and a prime brokerage official both said the average Canadian launch was around C$10 million. Vantage has adopted an innovative fee-sharing incentive program for founding investors, which is likely to have boosted day-one assets.
While many Canadian managers begin with a domestic launch and roll out an offshore version at a later date, Vantage has opted to launch both versions at the same time. "The Canadian domestic alternatives market is almost exclusively a high-net-worth channel," explained Managing Partner Mark Tredgett, who estimated that 70-80% of Canadian money entering hedge funds is that of high-net-worth and retail investors. "There are a limited number of institutional investors in Canada focused on allocating to domestic hedge fund mandates, so managers are limiting themselves from a meaningful opportunity if they only offer an onshore fund."
The domestic version is called, simply, the Vantage Fund. The offshore version is the VPP Fund—the initials stand for Vantage Protected Performance. About 70% of day-one assets are held by the domestic Canadian fund, which Tredgett said reflects the firm’s decision to concentrate its initial round of marketing on the partners’ existing contacts in Canada.
Tredgett’s business partner, portfolio manager Darren Gottlieb, managed the strategy at Royal Capital Management for four-and-a-half years, during which the portfolio generated a 14.3% compound annual return, net of fees. Vantage is targeting an annual return of 10-15%.
The strategy looks for opportunities across all market caps and sectors, and typically will span 25-35 ideas expressed through 40-45 individual positions. Canadian opportunities have accounted for 85-90% of the capital deployed by the strategy historically, with select U.S. and international ideas making up the remainder.
The funds will charge 1.5/20 fees with a high-water mark, monthly liquidity and no lock-up. The founders’ incentive program is believed to be a unique structure, whereby early investors receive a 20% share of total fees (management and performance) over the first three years of the fund’s life. The incentive applies to investors whose allocations are part of the first C$30 million invested in each of the two funds, onshore and offshore. At yearend, these founding investors will participate proportionally in a "bonus pool" totalling 20% of the aggregate fees realized. For example, an investor with C$15 million invested in one of the founders’ programs would receive half of the year-end bonus pool—or 10% of the fund’s total fees for the year.
Tredgett believes the incentive scheme has helped with the initial asset raise. The onshore fund hit its C$30 million incentive limit in late February, but there is still room for investors to participate via the offshore version.
Prior to co-founding Vantage, Gottlieb was manager of hedged investments at Royal Capital, following a number of years as a member of the proprietary trading team at TD Securities. Tredgett was a partner at Toronto hedge fund firm Jemekk Capital Management. Before that, he was head of the institutional hedge fund group at National Bank Financial from 2004 through 2006.
—Robert Murray