New York – A new emerging markets hedge fund is attempting to attract investors with its own proprietary expert network. The move highlights the ongoing importance of primary research to the investment process. It also represents another key theme for research providers searching for a viable business model–using intellectual capital to attract asset management fees.
A former Kroll executive is trying to raise money for a new hedge fund that will use intelligence networks to give it an information edge in emerging markets. Chris Morgan Jones, former head of business intelligence in Kroll’s European region, has teamed up with Ashley Dale, ex-head of European sales for CLSA, and Alistair Candlish, a former BlueCrest portfolio manager, to create Morgan Dale.
Using the slogan “Alpha through independent intelligence”, the new hedge fund maintains that customary sources of data and insight such as brokers and analysts have significant shortcomings. “Particularly in emerging markets there’s a built-in narrowness to traditional streams of information,” said Mr Morgan Jones. “The idea is to put together a network of people who are standing in streams of interesting information.”
The network has sources, include political lobbyists, an ex-banker, consultants, freelance journalists and a former intelligence officer, in Moscow, Beijing, Seoul, Hong Kong, Dubai, Istanbul and São Paulo. They are paid a basic retainer and a proportion of performance fees, and are required to sign an ethics code.
It will be interesting to see if the new fund can raise capital in this environment, when emerging markets funds have been especially hard hit. Although other hedge funds have invested in building their own channels of primary research, having set up offices in Asia, South America and Russia, these expenses are under internal scrutiny. Some hedge funds have already closed offices in Singapore, Hong Kong and Tokyo.
External expert networks are a cheaper alternative. Gerson Lehrman is the largest, but there has been a proliferation of competitors over the last few years. At last count, we have 34 expert networks in our proprietary database. While we expect some consolidation in this number, we expect demand for expert networks to continue despite the dramatic decrease in hedge funds and hedge fund staff.
The bigger threat to expert networks is new technology. Green Cay Asset Management in the Bahamas has used Second Life, the online world, to attract sources from developing countries. Social networks, such as LinkedIn, are both a blessing and a potential curse for expert networks.
The fate of Morgan Dale also speaks to another theme of interest to research providers. Dale says the fund’s managers will collate the information provided by the intelligence network and select investment opportunities through a rigorous investment process. “It is not counter-espionage,” said Mr Dale. “The key is getting these ideas and then putting them into an investment process that’s workable.”
Yes, indeed, that is the key. Right now, sell side analysts are contemplating the scary leap into the more entrepreneurial world of independent research. Those already in the indie world contemplate the scary leap into asset management. The success or failure of Morgan Dale might be instructive for some of the expert networks thinking about their current business models.