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February 28, 2018  

Tech Vendor to Screen Funds for Offering

Hedge fund technology vendor Novus Partners appears to be playing a key role in the launch of an alternative-investment business.

The 10-year-old firm, which sells risk-analysis software to about 200 fund managers and investors, is working with an undisclosed partner to build a so-called managed-account platform that would employ Novus’ technology, sources said. The new entity already has tentative commitments for up to $1 billion, which Novus and its partner would deploy to about 20 hedge fund managers via separately managed accounts.

Managed-account programs are increasingly popular options for investors who want exposure to hedge funds without the due-diligence demands of investing directly, or the high costs associated with funds of funds. The new partnership presumably would use Novus’ technology to screen managers for the platform, while the other party would have the final say in setting the line-up.

Novus originally set out to develop such a business on its own, but was concerned it might cause problems with its existing hedge fund clients — for example, if the program included some clients but excluded others. What’s more, Novus has access to detailed information about the portfolios of its clients, which manage a combined $3.5 trillion of assets. Relying on a third party to run the new business might mitigate potential conflicts.

Novus co-founder Basil Qunibi has long had the idea of using the firm’s technology to pick hedge funds for a multi-manager offering, a source said. But he was concerned about the reaction from Novus’ core clients.

“Novus gets positions from many managers so they can provide risk reports,” he said. “Thus if they have a product that they are promoting and managing, what are the controls that they don’t share position info of their top-performing managers?”

Qunibi runs his New York firm with Stan Altshuller. Both men previously worked at fund-of-funds manager Ivy Asset Management, a now-defunct arm of BNY Mellon. Their idea in launching Novus was to develop a more sophisticated, quantitative approach to evaluating hedge funds, rather than rely solely on a manager’s track record and interview skills. Bain Capital owns a minority stake in Novus.

Novus isn’t the first hedge fund vendor to seek to exploit its technology via an investment product. In 2014, Incapture Technologies launched a global-macro vehicle dubbed Alpha Capture Fund. Although the fund raised up to $150 million, Incapture abandoned the effort about a year later. Some investors apparently didn’t like the fact that the fund employed proprietary technology that Incapture sold to other fund operators.