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Hedging investment bets

Hedge funds might attract the headlines for all the wrong reasons but Jonathan Horton has staked his latest business enterprise on the fact that their returns in these troubled times will attract Australian investors.

Mr Horton is one of a growing band of Western Australians who have returned to the state bringing rare knowledge that was, in the past, too specialised to earn a living here.

But the state's growth has changed that, allowing a businessperson like Mr Horton to base himself in Perth to establish a niche financial services company offering platforms for investing in hedge funds.

Headquartered on Kings Park Road, NWQ Capital Management is Mr Horton's joint venture with two US hedge fund managers, New York-based Saguenay Capital LLC and Chicago-based Lakeview Partners LLC, with the latter taking equity in the business.

Mr Horton's fellow directors include Saguenay chief investment strategist Brian Walsh, Resource Capital Funds founder and managing partner James McClements, and University of Western Australia professor of finance Dr Raymond da Silva Rosa.

Lakeview co-founder Richard Elden will serve as adviser to the NWQ board.

Mr Horton said the firm would also be trying to educate the market, employing local students as analysts and funding an endowment chair at UWA, where his wife Tracey is dean of the business school, to help bring academic expertise into the state.

Mr Horton has been developing NWQ for the past year but he has only just opened its doors for business, providing a conduit for institutions and high net worth individuals to access a variety of hedge funds.

He said alternative investment classes were still relatively small, especially in Australia, but were set to grow as investors realised that money could be made outside the traditional equities model - especially at a time when share markets were ailing.

"Their performance is a function that is non-correlated with the market," Mr Horton said.

"In the period we are going to experience, or are experiencing, there is probably a good case to allocate to investment structures that can make money in both rising and falling markets."

Mr Horton said the NWQ concept had grown from 20 years working in the US, including a decade with his own business Horton Investment Advisory Group in San Francisco, which he formed after working at Lehman Brothers.

Before selling the wealth management business, he said he had seen a change in the traditional funds management sector while dealing with the assets of high net worth individuals, and decided to follow that trend.

"Most of the investment management talent was migrating away from the traditional long-only investment houses to alternative shops," Mr Horton told WA Business News.

The wider range of investment options and tools, and the potential for greater rewards, served to attract the best people.

Mr Horton said hedge funds offered a broad range of strategies, not necessarily all with leveraging, which helped the investor reduce cyclical risk associated with traditional equity investment.

"We are in the absolute (returns) space, our competition is cash," he said in reference to the current market where equities were delivering negative returns.

Acknowledging that recent issues such as the sub-prime disaster and other blow-ups had tarred the hedge fund name, Mr Horton said the service NWQ offered investors (with $US1 million or more to invest) was to vet the hedge fund management, provide research and due diligence, and be available locally.

That included watching hedge funds that were simply growing funds for the sake of it or where they had grown to size beyond the capacity of the manager involved

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Assets under management or net assets ($m)

13th-Viburnum$400.0m
14th-Centaur Property Funds Management Centaur Property$250.0m
15th↑NWQ Capital Management$250.0m
16th-CBH Super$231.8m
17th-Clough Superannuation Fund$211.0m
54 fund managers ranked by assets under management or net assets

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