03/09/2011

McMahan Recasts Firm in Commodities Role

Centaur Performance has reinvented itself once again.

Led by its flamboyant founder, David McMahan, the Greenwich, Conn., firm has changed its investment focus from credit instruments to securities linked to oil, gas, metals and other commodities. Effective March 1, the firm rebranded its onshore Centaur Credit Select Fund and offshore Centaur Low-Lev Arbitrage Fund as Centaur Commercial Materials Fund, with both U.S.- and Bermuda-domiciled versions.

The changes prompted the resignation of chief investment officer Henry Pizzutello, who had joined two years ago to rebuild the firm in the wake of the credit crisis. Pizzutello left last month. He was replaced this month by Derren Geiger, who had been running an energy-focused vehicle for the firm.

The strategy shift was dictated by McMahan, who views oil, gas, gold and other natural resources as the next big opportunity. Centaur will steer clear of “soft” commodities such as grain and cotton.

The firm's investments are now divided into three buckets. The credit team remains intact, but the focus now is on debt instruments tied to commodity-related companies. A separate portfolio will invest in commodity-related stocks and stock futures, with Strategic Asset Management of Chicago serving as a subadvisor. Geiger will continue to run his energy vehicle, dubbed Caritas Royalty Fund, which primarily targets oil and natural gas royalties.

Pizzutello left because his expertise is credit investing, and he felt uncomfortable overseeing other types of investments — especially after two years of marketing to credit-focused investors. “Henry Pizzutello joined Centaur at a very challenging time in our history,” said a firm spokesman. “He provided tremendous leadership and stability in managing our credit strategies. Given our recent strategy shift, we mutually decided it was best for us to part ways.”

The ongoing changes prompted two investors to redeem last month. One of them was Van Eck Global's Van Eck Multi-Manager Alternatives Fund, a mutual fund that deploys capital to separate accounts overseen by hedge fund managers. At the same time, Centaur has attracted new investments, said a person close to the firm. Assets under management, which started the year at $166 million, now stand at $161 million.

When Pizzutello joined two years ago from the proprietary-trading desk at Jefferies & Co., he was charged with revamping the investment process to appeal to family offices and other long-term investors. In addition to introducing risk controls, Pizzutello broadened the firm's investment scope from a traditional focus on convertible bonds to junk bonds, distressed debt and other credit instruments.

McMahan founded the firm in 1996 as Argent Funds, which became a well-known player in the convertible-bond-arbitrage arena. But the business suffered badly during the financial crisis, falling from a peak of more than $4 billion under management.

The company now runs two vehicles: the newly christened Centaur Commercial Materials Fund and Caritas Royalty Fund. The energy vehicle is subadvised by Cornerstone Acquisition and Management of Rancho Santa Fe, Calif., where Geiger is chief operating officer. He will continue to juggle that role with his new post as chief investment officer at Centaur.

Caritas Royalty Fund netted about 26% in 2010, followed by a 2.2% gain for the first two months of this year.

As for the now-defunct credit vehicles, Centaur Credit Select posted a 45.6% gain in 2009, followed by a 2.6% return in 2010 and a 1.1% gain for the first two months of this year. Centaur Low-Lev Arbitrage gained 33.4% in 2009, followed by 4.2% in 2010 and 4.4% for the first two months of 2011.

McMahan, who also founded brokerage firm McMahan Securities, is well known beyond the hedge fund industry. He helped finance the development of the Maxximus G-Force, billed as the fastest street-legal car in the world.

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