We spoke to Ken Kinsey-Quick and started by asking him to explain the background of the multi-manager division of the company?
A: "It was the first batch of funds that Thames River launched on 1 August 1998. I took over the multi-manager division at the start of 2003. It is the longest living part of the Thames River stable of funds.
"We have a flagship fund called Warrior, which currently has around $1.5bn in assets. There are three different ways to access it."
Q: What was the thinking behind setting up the multi-manager division specifically?
A: "The fund of hedge fund model was the most popular way to access hedge funds, which really started to gain investor attention towards the end of the 1990s and it accelerated over the bear market of 2002 because most people couldn’t evaluate the hedge fund strategies at the time. There were very few people that had the skillset so the best way to do it was through the fund of hedge funds approach."
Q: You mentioned the Warrior fund, what was the thinking behind setting up the various different funds?
A: "There was a lower risk fund – a more bond alternative fund called Sentinel - and there was the equity alternative called Warrior. So we started out with two products appealing to those different types of investor bases – ie those with the lower risk bond-type of mindset and the higher risk equity mindset."
Q: And then later you launched the Distressed and Currency funds?
A: "Yes, we just responded to opportunistic events in the marketplace. We thought they would make a lot of sense. Those funds are still up and running but their asset raising is generally more cyclical, whereas we like to view the Warrior and Sentinel funds as more bread and butter type of products that are quite stable in investors’ portfolios."
Q: Have the Warrior and Sentinel funds been more successful?
A: "They raised the most money so I suppose if you use that as a measure of success and especially the Warrior fund. Generally speaking investor appetite for risk over the last ten years has been higher (obviously that is changing right now as we go through this market rout) so therefore the Warrior strategy got a lot more investor attention than the Sentinel strategy."
"The Sentinel fund has attracted around $130m assets under management (AUM). The Warrior strategy is across three different products. At the end of January Warrior, the original product, had $813m AUM; Warrior II $687m AUM, and Hedge+, which is the London-listed version of the Warrior fund, had about $500m AUM."
"The reason why we have a Warrior II fund is because with the popularity of hedge funds over the last few years the capacity in our underlying funds that were in the Warrior fund managers were closing left right and centre. Therefore we decided to close the Warrior fund so that we didn’t dilute current shareholders and launched a Warrior II, with a portfolio that largely overlapped Warrior I but it meant that shareholders weren’t diluted in some of those holdings that were closed."
"The reason for launching Hedge+, which is a closed-ended vehicle listed on the London Stock Exchange, was that UK taxpayers cannot invest tax efficiently into an open-ended Caymans-domiciled vehicle – which is the hedge fund industry really."
Q: Did the reputation built up by the success of the original fund help to attract new investors?
A: "What we did was we fundamentally changed. The Sentinel strategy has been running since day one and hasn’t changed much over the last ten years. The Warrior strategy however has fundamentally changed. When I took it over in January 2003 we transformed it. What had happened in the hedge fund industry up until then was that equity long/short pretty much dominated as a strategy.
"However what we found over the years was that a lot of new hedge fund strategies were coming through, and if you were an early adopter of some of these strategies you were well rewarded for being a first mover. In January 2003 the Warrior fund went from being a long/short fund of funds to being more of an innovative, opportunistic investment vehicle with a much broader investment mandate to achieve its targets."
Q: What is your investment strategy?
A: "The key is innovation. I don’t think there is another product out there that is as innovative or focuses as much on innovation as we do. We are always looking forward so we hardly ever use quantitative measures for building up our portfolios. We are always looking forward to say where are we going to make money over the next 12 to 36 months."
"Generally we like to look in places where everybody else is not looking. That means looking at new areas especially when markets are quite hot as we have seen in the last five years or so – up until last year. For example we invest in the shipping and carbon markets, asset-backed lending, and the electricity trading and insurance premium markets."
"We are always looking for new ways and that is one key characteristic of the hedge fund industry ie it is very innovative in itself, whether it’s an equity long/short fund that changes to market circumstances but still remains an equity-focused fund or the industry as a whole transforming itself, which it was it is going through now."
"We are always trying to harness that creative edge to the hedge fund industry, and what we have found is that it does work."
Q: Are there any strategies you are avoiding?
A: "Any strategy that is dependent on leverage is a strategy that we are avoiding. The main reason for that is that you just can’t get leverage any more – banks don’t have balance sheets any more to be able to provide leverage. If we look at fixed income arbitrage for example, which used to suck up the most in terms of balance sheets from banks or prime brokers – they can’t provide that level any more and especially at wafer thin margins. There were small inefficiencies in the market which if you applied leverage to it then you could make a decent return but the key was getting that leverage which is not available any more."
Q: Do you find that people copy what you do?
A: "They do but that is just life – whenever there is a gap in the market money will find its way there. The key is to stay one step ahead of the game. That is how we have been able to maintain top quartile – if not top decile – returns over the last six years. Over the last ten years since launch the Warrior fund has outperformed all asset classes. Our objective is to get double digit returns year in year out and if we achieve that over time we will be able to outperform everything else."
Click here to view the performance of the Warrior fund/MSCI World Index 31 July 1998 – 31 January 2009.
For Ken Kinsey-Quick's views on possible increased hedge fund regulation see: Call to open up hedge funds to retail investors
For Thames River Capital's Middle East strategy and presence in the Gulf see: Meet the house: Thames River Capital