West Palm Beach (HedgeCo.net) – After being awarded $2.5 billion in allocation for investment in private equity, hedge fund manager Finvest Asset Management, announced the launch of a private equity initiative. Finvest is also separately dedicating $300 million to a fund of funds.

The $2.5 billion capital allocation to Finvest is being made by a European family office seeking to increase its exposure in the private equity space.

Targeting companies which are listed on the main boards in Northern American and European markets, the fund will seek to allocate capital to between 25 and 100 companies, with each allocation ranging in a value of between $10 million and $250 million.

The new fund’s time horizon will be between 3-5 years, although liquidity will be an important criterion assessing risk. Companies below a $200 million market capitalization will not be discounted, however, the fund will be favorably disposed towards companies with higher market capitalization levels, and which exhibit a high percentage of outstanding shares. The model which is being applied by Finvest is slightly different to the typical private equity structure, which generally would consider stakes in private companies which are not listed and perhaps seek to extract value through an IPO.

The team at the Finvest Private Equity fund indicated that their due diligence turn around period is quite aggressive. "While we are not looking to cut corners on due diligence, we are looking to fast track the allocation process, so that we can take advantage of a market which has been beaten to shreds," said Finvest portfolio strategist Mayer Greenwald.

"We do not have an agenda to take control or necessarily secure a controlling interest in the firm. We typically would base an interest in a company on the fact that management know what they are doing, and understand their area of endeavor better than others. Our philosophy is to provide company management with additional capital, and give them the opportunity to continue running with the ball. Obviously, we appreciate regular feedback on progress or challenges which are being faced in the industry," Greenwald concluded.

Alex Akesson

Tags: capital allocation, controlling interest, due diligence, equity hedge, equity initiative, equity structure, european markets, greenwald, hedge-fund-manager, hedgeco, launch, market capitalization, outstanding shares, palm-beach, portfolio strategist, private equity fund, risk companies, shreds, time-horizon

AllAboutAlpha.com – The Bank for International Settlements in Basel, Switzerland was probably abuzz last week watching history unfold before its eyes.  After all, one of the lynchpins of the organization’s Basel II Accord was the requirement for banks to mark-to-market all assets – including less liquid ones.  And it appears that doing so in a leveraged environment has put several banks into a death spiral in recent weeks (see featured post below).

But the BIS is also keeping an eye on hedge fund leverage.  The organization just released a working paper called “Estimating Hedge Fund Leverage” that proposes a new method of calculating the level of leverage used by hedge funds and, it is hoped, a way to measure any resulting systemic risks to the financial system.  Regular readers may remember that this topic was also covered by the Fed’s Tobias Adrian last year.

As the authors of this report point out, leverage comes in two basic forms: funding leverage – where you literally borrow money to goose returns (or losses) and instrument leverage - where the securities themselves have leverage baked in (such as a futures contract, option or swap).  But at the end of the day, if a fund rises twice as much as the market on “up” days and falls twice as much on “down” days, then the source of leverage is less relevant.  In fact, divining leverage based on historical returns will also capture the leverage implicit in the balance sheets or business models of individual securities.

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Tags: anita, asset-management-company, chief-executive, european-securities, fertile-environment, fund-balance, june-14, losses, squeeze, swaps-market, time-horizon, trillion