March 07, 2004
Hedge fund leads rush to float by Louise Armitstead
RAB Capital is the first to plan a listing in London. Others are bound to follow.
IN the spring of 1999 Philip Richards and Michael Alen-Buckley arrived almost empty-handed at their new office — a small room in 1 Adam Street, just off the Strand in central London.
The day — April Fools’ Day — seemed apt at the time. Richards and Alen-Buckley, both highly regarded bankers at Merrill Lynch, were giving up stellar careers to start their own hedge fund, RAB Capital. The only money they had was their own, and their staff consisted of one manager, a compliance officer and a secretary.
Five years on, the little room in 1 Adam Street, still RAB Capital’s main trading floor, albeit straining under a vastly expanded workforce, is again the engine room of an ambitious and pioneering venture.
Last week RAB Capital became the first stand-alone hedge-fund company to announce its intention to float in London.
Richards, 46, and Alen-Buckley, 43, will be at the helm of a company with a market value that could be as high as £100m. Their stakes could be worth £30m each. Advised by KBC Peel Hunt, the firm will release a prospectus tomorrow revealing how much money it intends to raise.
In the past five years, Richards, a former army officer, and Alen-Buckley, who is the son-in-law of the hotelier Lord Forte, have increased their funds under management from £4m to an estimated £1.1 billion. They have 40 staff (16 of them managers), 7 hedge funds and a track record that is the envy of the City.
RAB’s first fund, the European equities fund, which was launched in November 1999, has made returns of 84% despite the tumbling markets.
Floating will for the first time allow small investors to take part in the success of a hedge-fund boutique rather than investing in one fund.
But there is growing concern that they will also be exposed to risks that at the moment are restricted to professional investors.
Watching in the wings are hundreds of other hedge-fund managers, salivating at the thought of following RAB to market and realising the value of their businesses. Investment bankers and advisers are also rubbing their hands at the prospect of a spate of similar deals.
Two funds earmarked for flotation are Thames River Capital and GLG Partners, one of the biggest hedge funds in London, with about $8 billion under management. Experts say plenty of others are looking to float as a way of cashing in.
Richards and Alen-Buckley dismiss the suggestion that this is their motive for floating RAB. “Right from the start we wanted to create a long-term business and we’re here to stay,” said Richards. “Floating is an indication of our permanence. Neither one of us will be taking cash out. We are also doing this for our staff. We have given them options over the years and this will be their chance to realise some cash. Staff loyalty is important to us and to our clients, who like the stability this offers.”
The cash raised from the float will also be used to launch additional hedge funds and bankroll the company’s rapid expansion.
Managers have already been hired for several new funds that will specialise in energy and in Japan. Small investors are likely to be attracted through a joint venture with Saga, which provides services for the over-fifties and has 7m customers.
Richards and Alen-Buckley built impressive reputations in the City working together in the late 1980s at Smith New Court, where they helped to build the stockbroker from a market value of £10m to one of £500m by the time it was sold to Merrill Lynch in 1995.
Both men had been watching the growing hedge-fund industry with interest. Alen-Buckley had numerous contacts, including leading figures such as George Soros. They spent four years at Merrill before quitting to set up RAB.
Alen-Buckley, who is taking the title of executive chairman, is described as the “public face” of the business. Richards, who goes from chief investment officer to chief executive, is more involved in strategy.
Richards runs the Special Situations fund, which is just over a year old but has already generated a return of 1,274%.
Since hedge funds are known for being opaque and secretive, observers are concerned that RAB will struggle to live with the scrutiny that comes with being a public company.
Richards said the company planned to float on the Alternative Investment Market (AIM) rather than the main market so that lengthy meetings with institutions could be avoided. “We want to spend our time managing the money, not talking about it,” he said.
“We have a simple philosophy. Our goal is to produce consistent returns in all market conditions. We think that if you work on managing the risks and reducing the downside, the upside tends to look after itself. The float is exciting but it will still be business as usual.”
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