Hedge Fund Team Exits Julius Baer's Unit to Start Own Stock Firm

(Bloomberg) -- A group of investment managers has left Julius Baer Group Ltd.’s Italian subsidiary Kairos to start a new equity hedge fund.

Federico Riggio, Michele Fiumara, David Grazzini, Vittorio Villa and Flavio Russo, who were overseeing the Kairos Pegasus Fund S.A., departed at the end of September, according to people with knowledge of the matter. The new company, Helikon Investments Ltd., will have offices in London and Milan.

The team will file for registration with the U.K.’s Financial Conduct Authority before year-end, hopes to launch the fund in April with at least 500 million euros ($549 million) and plans to raise as much as 1 billion euros, said the people, who asked not to be identified as the information isn’t public.

Riggio, who had been in charge of the Kairos Pegasus strategy since 2014, will be chief investment officer of the new company and Paul McLernon, previously at Pacific Asset Management, Pensato Capital and Goldman Sachs Group Inc., will be the chief operating officer.

Sale Explored

Julius Baer has explored the sale of Kairos, an asset and wealth manager with 9.4 billion euros under management, but in late August said it planned to retain ownership of the company, which suffered outflows in the first half of the year. The Swiss private bank also said that it aims to develop a strategy for a closer alliance between the two firms’ wealth management businesses for clients in Italy.

The Kairos Pegasus Fund, which mostly focused on European equities, returned about 150% since its 2014 inception through the end of August, according to a factsheet. That compares with a loss of 3.6% for the Hedge Fund Research HFRX Equity Hedge Index in euros. In the first nine months of this year, the strategy handed investors about 17%, a person familiar said, beating the 6.6% return for the HFRX index.

Kairos is currently recruiting new fund managers following the team’s departure, one person said. The new fund’s team is also in talks with several prime brokers, including Bank of America Corp., whose spokesperson declined to comment.

Hedge funds around the world have been suffering from client withdrawals after years of poor performance failed to justify their relatively high costs.

Investors have pulled almost $64 billion this year -- more than in all of 2018, according to eVestment data, as a powerful rally in key equity benchmarks fueled a switch from actively managed funds to cheaper passive strategies. More hedge funds have shut than started in each of the past three years, and the new funds that appear are typically far smaller than funds launched before the financial crisis.

However, there are some signs of progress for alternative asset managers. Hedge funds gained 4.9% on average in the first three quarters of 2019, their best performance in this span since 2013, according to a report on Monday from Hedge Fund Research, with equity strategies leading the gains. The Hedge Fund Research HFRX Equity Hedge Index is down 0.3% so far in October in U.S. dollar terms while the S&P 500 has declined 1.3% because of concerns about economic growth.

To contact the reporter on this story: Ksenia Galouchko in London at kgalouchko1@bloomberg.net

To contact the editors responsible for this story: Blaise Robinson at brobinson58@bloomberg.net, Jon Menon, Paul Jarvis

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