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October 09, 2019  

Titan Co-Founder Betting on Niche Strategies

Titan Advisors co-founder Tom Holliday has left the fund-of-funds operation to start his own business.

Through a startup called Holliday Investment, Holliday aims to form partnerships with hedge fund managers for the purpose of developing and marketing niche strategies that are largely uncorrelated with financial markets. He’s currently in talks with an unidentified manager about launching the first such vehicle early next year, while simultaneously talking to an investor who wants exposure to the strategy.

Holliday plans to approach multiple managers with expertise in capacity-constrained strategies that have the potential to generate strong returns over 3-5 years, while also acting as a hedge against volatility in the equity and bond markets. In each case, his firm would form a joint venture with the manager, help structure the vehicle and take the lead role in fund raising. In exchange, it would receive a share of the manager’s fee revenue.

The kinds of strategies Holliday will target could include electricity trading, environmental credits, royalty streams, trade finance — even purchasing commercial quantities of raw whiskey for the purpose of aging it and selling it at a premium.

Risk-tolerant investors, led by family offices, are increasingly interested in niche strategies following a period of disappointing performance among conventional hedge funds including long/short equity and global-macro vehicles. An investor survey Deutsche Bank published last year found demand had jumped, year-over-year, for strategies including litigation finance and royalty rights.

Many fund operators, on the other hand, have no interest in offering vehicles dedicated to illiquid assets because of the inherent capacity constraints. Depending on the asset class, a manager may be able to profitably deploy only $50 million or $100 million — and rarely more than $250 million. That limits the potential for management-fee revenue.

Recent examples of fund launches featuring niche strategies include Segra Capital, a Dallas firm that runs about $100 million in a vehicle focused on the nuclear-fuel sector; Sag Harbor Management, a New York firm that so far has raised $10 million for a fund that will invest in merchant cash advances; and Bain Capital, which in August pooled $197 million of partner capital to seed managers running niche strategies. Bain now wants to raise at least $100 million from outside investors.

In addition, Kroll founder Jules Kroll said this week he was launching a litigation-finance shop called BlueWhite Legal Capital with funding from hedge fund manager Magnetar Capital.

Holliday has yet to settle on a location for his business. He continues to own a stake in Titan, while no longer having a role in day-to-day operations.

Holliday founded Titan in 2001 with president George Fox. The firm manages about $4.5 billion in funds of funds and multi-manager separate accounts.

Before joining Titan, Holliday briefly worked at Soros Fund Management. His resume also includes Pertrac, a pioneer in developing software for hedge fund investors, and defunct commodity-futures broker Refco.