Top Challenges Facing Today’s Start-up Asset Managers/Hedge Funds

By Peter Cocuzza

Special to the TradeTech Blog

After the market collapse of late 2008, the environment proved extremely difficult – to put it lightly – for asset management businesses to survive, let alone thrive. But while many hedge firms/asset managers were closing their doors, Stone Toro Asset Management, LLC, believed it was an opportune time for theirs to open.

“Building a solid infrastructure was one of the most important challenges our firm had to tackle while laying out the groundwork for our new asset management business,” said Jim Cooney, Director of Trading, Stone Toro, which is based in Princeton, New Jersey. “It all started by employing some of the most talented and experienced professionals in our industry.”

Stone Toro began operations in late 2009 and is led by alumni from Merrill Lynch Investment Managers and Blackrock, Jeffrey Russo, Michael Jarzyna, and Richard Jenkins. After more than a year of synthetic trading and operational development, the firm recently launched its global event driven strategy and started an incubation program for its long/short small/mid-cap relative value tech strategy.

Some of the key and most challenging issues that asset managers/hedge funds face today include the ability to utilize technologies, raise capital, and enhance trading strategies for optimal performance and returns for their investors. Naturally, raising capital and introducing new clients to business models has proved the most challenging aspect of starting a firm. But with a solid long-term plan and infrastructure, it is only a matter of time before a young firm like Stone Toro can start to gain momentum.

One of the initial decisions that firms like Stone Toro need to make is which Prime Broker to hire. Prime brokerage offers these firms an array of important functions such as supplying firms with the absolute best technology in trading platforms.

“Having the best all-around systems for our firm to execute and trade our order flow is [top] priority in gaining an edge on our competition,” said Cooney. “The trading platforms that we utilize today are far superior to what we used even just a couple of years ago.”

Another important function of a Prime Broker is to supply and manage all aspects of trading and reporting. This includes clearing and settlement, brokerage, stock lending, custody, and credit facilities for leverage. Additionally, Prime Brokers will facilitate introductions to potential new capital and institutional investors.

Alternative investments are undergoing increased scrutiny and diligence from investors for many reasons. Stone Toro has selected world-class vendors to provide key services in managing its two strategies. In addition to a reputable Prime Broker and administrator, it is critical for a young fund to choose experienced and reputable legal counsel and auditors to enhance the perception that investors’ assets are in capable hands and that key data is reviewed by credible, outside sources. While the costs associated with these top-ranked service providers can be steep, it is a necessary expense that ensures the propriety and confidence of investors.

As the economy and changing market conditions continue to improve from where they were in late 2008, institutions are showing strong interest in Stone Toro’s business model. So far the firm has held meetings with about 200 prospects over the last year, and only a few have said that they’re not at all interested, according to Cooney. The firm is in active discussions with several institutional investors, both domestic and international.

“It doesn’t mean that they will invest – they each have their criteria for their timing – but it’s positive,” said COO, Richard Jenkins. “Our focus will always be in the absolute and unconditional best interest of our investors. “

No related posts.