Ivy blooms as investors demand hedged products

Ivy Asset Management has tripled its assets under management since 2000 and is now scouring Europe for new managers and investors

Ivy Asset Management's latest product launch signals that it has not forgotten the individual investor, despite most of its assets now coming from institutions. The company has attracted 70% of its current $7bn assets under management since changing its business model in 1994 to take advantage of growing demand.

The new product, the Ivy Multi-Strategy Hedge Fund, mirrors a $1.5bn fund of hedge funds already running for four years, but it is Ivy's first SEC-registered vehicle. Described as an 'all weather' vehicle, it will target investors with a net worth of at least $1.5m and at least $100,000 to hand over. Ivy invests in three core strategies for the product; 50% in market neutral hedging; 30% in special situations and the remaining 20% in long/short equity.

Larry Simon, president and chief executive of Ivy, who alongside Howard Wohl founded the company in 1984, now sees the possibilities for an individual's asset allocation to include alternatives permanently.

When it comes to long/short strategies, Simon reveals a preference for experienced managers when it comes to the latter portion.

'These are managers that are longer in the tooth, what I call 'grey-hair-or-no-hair guys.' They have been around, seen difficult markets and have proved they can make money at times like these, or better yet, preserve capital.'

In respect of managers more generally, Simon believes alternatives are well suited to the younger generation.

'I wouldn't be shocked if by 2010 we are at $1.5-$2trn in alternatives. It is a great area for young people to get involved in due to the way the fees are structured. There is little resistance to entering, and there are opportunities for young people to build their reputations,' he says.

'For example, they come out of a good school, work for a good firm, leave for a hedge fund and get their MBA. By this time they may only be aged 30 or 35, so they say to themselves, 'I can attract $20-$30m myself.' If they have a good year and make 30%, they made $9m and 20% of that is $1.8m. Unless you are an athlete or an entertainment star, where else can you have a pot of gold like that?'

The firm also has growing emphasis in Europe. 'Today we have around 110 managers in the portfolio, about 10% are in Europe. As capacity ebbs and flows, the ability to find managers outside your back yard is important. For the most part these are in London,' says Simon. Three or four years ago, Ivy had no European managers among its underlying managers.

Ivy's European focus is not just in terms of managers to invest in. While the firm's UK office currently has fewer than 10 staff, who are dedicated to manager research alone, it is presently negotiating for space five times the size of its current operation.

'Unlike other firms, I believe the bigger you get, you have to add people to stay ahead of the curve. You cannot tackle $10bn with the same staff that you have for $7bn,' Simon says.

Coupled with Ivy's global expansion is the need for a differentiated understanding of individual investors' requirements and market trends, as well as researching the most talented managers.

According to Simon, there are differences in demands between US and non-US investors in areas such as liquidity.

'We do not think you establish a good relationship with managers if you are going to have monthly liquidity. If there were clients that wanted capital we could basically do it without affecting the ongoing running of the portfolio.

'In Europe, however, there is more of a need for monthly and daily liquidity and also in Asia. In the US, people are more comfortable with semi-annual or annual liquidity in the first year and quarterly the following. It is a different mindset.'

He is also keen to emphasise Ivy's own institutional strength, coupled with the firm's senior partners' own commitment, shown by them investing their own money in Ivy products.

Since being acquired by Bank of New York in October 2000, the firm's assets under management have risen from $2.4bn to $7bn, $200m of which has come directly from the firm's senior executives.

'The founding senior managers and individuals of both Ivy, which has 2% and Bank of New York, which is another 1%, make up 3%, or $200m, of our capital, invested alongside our institutional and high net worth individuals,' says Simon. 'Not too many fund of funds founders and general partners have that kind of money invested.'

It is becoming evident the most established market for hedge funds, the US East Coast, suffers from under-capacity and Simon says many of the best managers will close. Given that Ivy would turn down an injection of capital if only 'sub par' managers were available, a much larger presence in the UK and Europe is a distinct possibility.

Biography

Larry Simon is president and a co-founder of Ivy Asset Management. He also serves as Ivy's chief executive and is on Ivy's asset allocation committee.

Ivy employs more than 120 people in New York, San Francisco and London in five main departments ' investments, client development, finance and administration, human resources and information technology.

n Simon graduated from City College (City University of New York) with a BBA in accounting.

n 1965-1970 he was employed as a staff accountant at Oppenheim, Appel, Dixon & Co, later known as Spicer & Oppenheim. Co-founded Wall St Concepts, Inc providing the STAR computerised investment securities record keeping and performance measurement system.

Wall St Concepts was acquired by the Monchik-Weber Corp, a computer services and consulting firm to the financial services industry.

n Simon served as vice president, corporate development and acquisitions for Monchik, which was later acquired by McGraw-Hill.

Ivy's core investment strategies include:

Absolute Return/Market Neutral

Convertible arbitrage

Relative value industry specific

Long/short dollar neutral ' fundamental and technical

Fixed income arbitrage

Options arbitrage

Multiple strategy ' hedging

Long/short equity

Industry specific

Technology

Biomedical

Healthcare

Retail

Media

Financial

Generalists

Event-driven/special situations

Merger arbitrage

Distressed securities investment

Spin-offs

Restructured equities

Source: www.ivyasset.com