Back from the brink and stronger
By Ian Fraser
Financial Times
FTfm section
June 4th, 2007
After near collapse four years ago Euronova is now looking to expand, says Ian Fraser
AMANDA Swanson acknowledges that Euronova Asset Management, the hedge fund boutique that she co-founded in 2000, came close to the brink of collapse four years ago.
As global markets plummeted in March 2003 following the invasion of Iraq, Euronova suffered a haemorrhaging of funds and ended up with a meagre €2.5 million (£1.7m) to manage.
The situation was exacerbated by concurrent changes in hedge fund distribution and by the departure of David Houston, who had co-founded the business with Ms Swanson.
“I felt ‘this is the end’,” says Ayrshire-born Swanson, who spent 15 years in fund management with Ivory & Sime, Walter Scott & Partners and Kempen Capital Markets before co-founding Edinburgh-based Euronova. “The only reason we survived was that we ran it lean and mean.”
Ms Swanson now warns anyone considering setting up a hedge-fund business that they will need sufficient personal capital to see them through their first three years of operation. She also says it can be very difficult sustaining a hedge-fund business when its very survival is stake. “If you’re worried about survival it becomes impossible to manage the fund properly; there’s a tendency to be too cautious.”
Fortunately, Henry Reid came riding to the rescue and recapitalized the business. Ms Swanson got to know Mr Reid when he ran The Europe Company, a specialist European brokerage, and she was with Edinburgh-based Kempen Capital Management during the 1990s.
Mr Reid who sold The Europe Company to US-based Jefferies International in 2000 stepped in as Euronova’s majority shareholder in October 2003, enabling the beleaguered group to get back on the front foot.
The arrival of Mr Reid, who is the son of Pat Reid, the prisoner of war famous for chronicling the escapes from Colditz, enabled Euronova to strengthen its Edinburgh and London-based management team through a number of key hires.
In January 2004, the former Jura Capital and Lehman Brothers executive Jeremy Graham, who had worked with Reid at stockbrokers Wood Mackenzie during the 1980s, joined Euronova as a partner. In April 2006 the group they were joined by Andrea Bettoni, formerly a European smaller companies analyst at The Europe Company.
Currently Euronova Asset Management, which is an FSA-regulated limited liability partnership, manages only one fund. This is the Euronova European Smaller Companies Fund, which is Dublin-listed and domiciled in the Cayman Islands. Launched in October 2000, the €133m fund has an independent board of directors chaired by Richard Burns, a former senior partner of Baillie Gifford.
Currently 91 per cent net long the fund has delivered strong returns over the past three years on the back of successful stock-picking, but has obviously also been propelled by the fact European equity markets have been extremely buoyant over the past three years. The fund’s self-declared goal is to generate “alpha” through both long and short positions, and where appropriate the use of index futures to reduce exposure. Investors in the fund include high net worth individuals, family offices and funds of funds.
Mr Reid, who is Euronova’s chief investment officer, now spends the bulk of his time looking at companies. Of the 3,000 companies that are classified as small and mid caps in Europe, Euronova tends to pick between 50 and 60, and focuses on those with market values of less than €1.5 billion. He and Ms Swanson make extensive company visits.
“The differentiating factor is that, rather than staring at screens all day long, they spend as much time as possible speaking to as many managements as possible,” says Mr Graham.
With the annus horribilus of 2003 behind them, Ms Swanson and partners now feel confident enough to embark on further expansion. Mr Graham says that having several months trawling the Square Mile and beyond to find people eager to launch hedge funds under the Euronova umbrella, the group in poised to launch three further “strategies”.
Ms Swanson says: “The idea is to assist fund managers who want to start on their own but who would otherwise struggle to get started. Euronova will take on responsibility for marketing, compliance and risk management, and will also assist with setting up the fund and split the revenue and cost.”
She says there are some parallels with the joint venture model that has been adopted by the likes of RAB Capital and Man Group.
In February 2007 Euronova retained headhunters Sainty Hird & Partners to assist with the search, and they delivered a shortlist of eight people who Swanson says were all of an amazingly high-calibre.
Ms Swanson says: “There are a lot of people who want to their own thing but who perhaps don’t have sufficient personal resources to do or else they cannot face living through the initial agonies of starting up their own fund management business.”
Swanson, who is co-manager on the European smaller companies fund, as well as being the investment boutique’s chief executive and finance director, says one of the major advantages of being based in Edinburgh is that it makes it easier to have one meetings with corporates.
Corporates visiting Edinburgh generally try to squeeze five to six meetings into a day – which means they can get around all the Edinburgh-based asset managers with an interest in European smaller cap stock easily. “It is also a very civilized place to live and work,” she adds.
Short URL: https://www.ianfraser.org/?p=82
Posted by Ian Fraser
on Jun 4 2007. Filed under Article Library.
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