If you want $1 billion mandates for your new multi-manager alternative funds, you better hustle. Hustle well and for a long time.
| Jeff Mitchell|
Head of Manager Research in Strategic Advisers business
Or at least that's what Blackstone Alternative Asset Management
and Arden Asset Management
did to win billion dollar tickets from Fidelity
, as part of its first foray into alternative investments within the discretionary managed account platform.
But these $1 billion investments didn't come easy. They took at least two years of courting, working out kinks, negotiating with the underlying hedge funds on liquidity, leverage, derivatives and everything else under the sun and moon. Arden and Blackstone also signed exclusive deals with Fidelity, meaning that, for a specified amount of time, they'd be managing these funds solely for Fidelity and would not pursue other clients.
, head of manager research within Fidelity's $124 billion Strategic Advisers business, said the firm considered many similar industry players when it started looking into alternative investing, but went with these two as they were a better fit for what Fidelity was looking for.
They have historically been focused exclusively on hedge funds and those managers were willing to port their strategies into daily liquid '40 Act mutual funds. They had a real eagerness to do what was needed for our clients. They had a big emphasis on risk management and compliance, and access to a strong set of hedge fund managers. They were both early to market in how they'd develop these solutions. That's an important piece in what you're looking for in a partner. They were both incredibly strong on underlying managers that had a history on delivering good performance.
Although the $1 billion mandates are quite large--no other alternative firm came out with that much money straight out of the gate and even institutional pension or endowment mandates don't tend to run that high (they're usually in the $100-$300 million range to start)--they are still a small part of Fidelity's total portfolio.
"We have limited the amount to a maximum 1 percent position [with each firm]. There is a lot to learn here. We're still doing a tremendous amount of evaluation to make sure they are delivering what we think they are delivering, particularly when it comes to market corrections," Mitchell said.
He explained that the two firms and the relatively small allocation was a good start for Fidelity to dip its toes in the alternatives waters and if everything goes well, he could envision investing more in the space. He wants to give these funds some time in the portfolio to see how they will move the needle and whether they'll have a positive effect in terms of mitigating down-side risk and improving risk-adjusted performance.
If you didn't get a piece of the action at first, don't worry, there's still hope. Mitchell said Fidelity might do more such partnerships or investments in the future, as it gets comfortable around alternative investing. For that reason, he declined to name the runners up, as they may still be winners at a later date.
Mitchell also declined to say how long the exclusive agreements were meant to last, but they look to be about a year, as Arden launched
its follow-on separate multi-manager mutual fund earlier this year, about a year after the Fidelity relationship began, and Blackstone is going to launch
its clone fund in the summer, also a year after the Fidelity investment started. The original Blackstone Alternative Multi-Manager I
fund (BXMMX) and the Arden Alternative Strategies I
fund (ARDNX) will remain solely Fidelity relationships, though the two clone funds will be very similar and will pursue other retail clients.
The Strategic Advisors platform manages money for a range of retail clients. Fidelity goes over a list of goals, risk appetite, concerns and plans with the clients in the beginning, and then manages their assets on a discretionary basis, still checking in every so often on whether the clients' investment goals or risk tolerance have changed since the initial investment strategy conversation.
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