Hedge Magazine, October 2012. Original article here, p32-36.
Jeroen Tielman, founder and CEO of IMQubator.
Ambition is in plentiful supply for Jeroen Tielman of IMQubator, the hedge fund seeder with the self-appointed mandate to lead the change for the new generation of alternative investment management. This is certainly a tall order, but the CEO and founder seems confident he may be the man for the time and place: “We believe we are facing a new normality, and what that means exactly is not yet clear.”
Having founded IMQubator during the turbulence of January 2009, Jeroen Tielman is not sitting around waiting for the markets to get back to pre-downturn conditions. Over teas in London’s Fitzrovia, the Dutchman explained to us how he believes we will see a stabilisation, however investors need to understand that life as we knew it is over. “There is a fundamental uncertainty amongst investors, because we seem to be moving into a new era, as compared to the last 40 years. This is a major change that could make investors more reluctant, but it could also push them to put more money into a skill-based asset class such as hedge funds.”
The first investor getting onboard with the philosophy presented by Tielman, formerly global head of product development at ABN Amro Asset Management, was APG, which manages the assets of the largest Dutch pension fund. The Eur250m committed by APG is almost fully invested now, says Tielman, but what does his principles for next generation hedge funds look like in practice?
“Even before the beginning of the crisis, back in 2008, investors had certain complaints about the functioning of hedge funds. This led to a realisation: the provision of seeding capital to new hedge funds, led by people who had been very successful in the past, represents a unique moment of true alignment of interest between the investor and the fund manager,” says Tielman. For investors, getting in on the ground means being able to customise their product: influence charges, improve transparency, gain consultation rights, and so on. By making investors into co-launchers, they are no longer passive consumers of a product.
A key consequence of this approach is a better understanding of the investment, especially the risks involved. Better transparency is a significant part of this, says Tielman, as well as equalising the division of responsibility between the investor and the manager: “The interesting observation is how all products in the financial industry are being engineered by the suppliers. Hence in the whole governance structure, the interest may become skewed towards those of the suppliers.” By participating in the set-up process of the product, investors have the opportunity to correct this potential imbalance.
Of course, this method means investors could be additionally out of pocket should something go wrong. The downside depends on the level of involvement, says Tielman, as he explains how IMQubator may typically invest the first first ticket of Eur25m, and take a 25% stake in the company in question. The equity will be secured at a nominal amount, meaning investors will only lose a very small sum should the stake prove worthless. If things go well, however, the equity could result in a nice bonus.
As to the fund’s performance, IMQubator will not publish numbers, however Tielman confirms the aim for the total portfolio is capital preservation in these so-called “abnormal” market conditions. In more “stable” circumstances, the aim is a 7-9% return: “I would not say this is a low-risk portfolio, but we are not aiming to shoot out the lights with a highly risky approach either. It is a solid and stable portfolio.
IMQubator currently runs nine funds, with Volvar Eurozone Volatility being the most recently launched this February. Its mandate is to make lemonade from a very large pile of lemons, laughs Tielman, before conceding: “But it is a challenge to find the winning strategy in the current climate.” Still, during the first month of operation it had a return of over 3% with its a volatility arbitrage strategy; “It is invested in several derivative instruments where they benefited from changes in volatility in the market.”
IMQubator’s most established fund is the Branta Solutions Fund, which has performed steadily since inception: “They are really showing the market that a sustainability theme can be actively implemented, instead of just being a passive filter excluding certain activities.” Also interesting is the Mcapital Special Situations Fund, investing in stressed and distressed credit funds in Asia and Europe: “We may expect some uploading of distressed securities by banks down the road, and the capital is well positioned to benefit from that, if and when it happens.”
With each fund run by its own dedicated management team, Amsterdam-based IMQubator has six people in the core team, soon to become seven. Tielman oversees dealmaking and valuation of individual funds, while CIO Rikard Lundgreen, formerly CIO of Folksam Asset Management and founder of advisory group Valor Partners, oversees total performance. COO Remco Zomer, formerly of investment group Orca Finance, tends to operations and structure. Tielman emphasises how selecting the right people to work for, and with, IMQubator, is crucial for the company: “And not just in terms of what people have done in the past and how natural is it for them to start their own fund, but also their passion and drive.” In a timely metaphor, Tielman looks to hire people who not only have the drive to want to join the investment Olympics, but who also stand a good chance of winning in their respective disciplines.
On that note, May saw IMQubator launch the Capital Introduction Network, which means the group will work with a selection of small boutique placement agents enjoying longstanding relationships with their clients. So far, seven agents, operating out of New York, the Middle East and continental Europe, have joined the network, which theoretically gives IMQubator access to 240 additional end-investors. Another initiative now underway is the pair-up with Synergy Fund Management, which was launched in January with the exciting mandate of seeding and accelerating emerging hedge fund managers in the Asia-Pacific region. Tielman is however careful to manage expectations for the initiative: “It is a step by step approach which could turn into a mutual advisorship. We see this cooperation, currently focused on sourcing managers, as a logical step to get to know each other, and to see what opportunities are available.”
Still, Tielman is optimistic when it comes to emerging managers as an investment niche, which he seens as a relatively new and unknown, but growing area: “Curiosity, skill, and the ability to learn from every step is what you need to enter such an area. With emerging managers you need a moment of alignment of capital and talent, and this is more tangible than investing in mature hedge funds.” Tielman points out how US pension funds have tentatively started denominating emerging hedge fund managers as a separate asset class, a trend also spotted in Asia and the Middle East.
While always quick to qualify his visions for his company and the industry, Tielman is determined to grow the IMQubator business. And there is no doubt he is having fun with the task, bringing onboard an entrepreneurial spirit as he develops his new approach to alternative investment management: “Yes, I’m enjoying it, absolutely!” Right now this means getting more high profile investors onboard and talks are underway to this end, and eventually Tielman also wants to expand IMQubator to international locations. “We will also aim to provide acceleration capital in addition to seed capital,” says Tielman when asked to cast his net even further into the future. “In the long-term, we believe seeding capital is not only very interesting for hedge funds, but also for private equity funds. So there you have my wishlist.”