Hedge Magazine, 2014. Original article (p43-46).
For the love of the game:
Dixon Boardman, founder and CEO of Optima Fund Management
London mornings are a reprieve for Dixon Boardman’s busy schedule, providing a few hours of unusual calm. “I love being in Europe because the mornings are free, as everyone’s asleep in America So I can get things done in the morning which I wouldn’t normally be able to do.“
One of these things is sitting down with this journalist, although Boardman would never say this outright; the New Yorker is much too polite. Boardman’s reputation as a hedge industry leader precedes him: the founder and CEO of Optima Fund Management has been in the thick of it for 26 years, he knows everybody, and several of those people describe him as a “guru” without irony. What the research doesn’t reveal, however, is how this industry wizard a perfect gentleman with a knack for making you feel at ease, as he punctuates his stories with laughter.
Our luxurious surroundings are those of 5 Hertford Street, the private members club in Mayfair. You gain entry through an unmarked door, rendering the place unexpectedly difficult to find, considering the solid hint in the name. Of course, this is an exclusive place for a certain elite, and simplicity is not a requirement. Privacy, however, most certainly is, so the photographer must wait outside. The hedge fund manager is in a corner room in the labyrinthine building, where paintings and knick-knack cover every wall and shelf, the result being kooky yet curiously elegant. Boardman is equally stylish, in a charcoal suit with a magenta shirt and maroon tie, and tortoise shell glasses dangling from the hand. He tells his stories calmly with a smile, like a man with plenty to say and nothing to prove.
A good reputation
Boardman normally comes to London at least twice a year, visiting with clients and sometimes managers too: “I try and combine business with pleasure. I love it over here.” This feeling goes all the way back to the American’s school days at Stowe, which may be partially responsible for the crisp mid-Atlantic accent with only the rarest Americanism slipping in.
Founded in 1988, Optima Fund Management now has $4.4 billion in assets under management. The company advises on multi-manager portfolio as well as runs its own single manager hedge fund programme. Institutional investors now make up 70% of the client base. Boardman is known for playing a long game: “We’re risk hypochondriacs. We are quality-obsessed, we know our way around the industry so well. I think that’s helped us very, very much. We have a good reputation.”
What this also means is that Optima can get access to funds that may be closed to other investors. This is in part because this good reputation is not just among clients, who enjoy the returns, but among the managers as well. “We’re beginning to see managers who worked in some of the old funds, start their own new funds. Having been doing it for so long, when there’s someone good – we hear about it. It’s awfully nice when [Tiger Management founder] Julian Robertson picks up the phone and says to me in a Southern drawl: ‘Dixon, I got this really good new guy you got to come and meet!’ That’s good, that’s terrific.”
Asked how he picks managers to invest with, Boardman deems the question “unanswerable”, but he will try: “Sometimes you just know, when it’s such raw talent and such incredible analytical skill. Having been doing this so long, maybe one has an edge in being able to see it? Sometimes one watches them grow in their old firm before they have started their own firm, so that’s a huge advantage.” And recommendations from the likes of Robertson, or Chase Coleman of Tiger Global Management, will of course be an indicator that a new manager is worth considering. “I have befriended many of the managers we have money with. I’ve got to know them well and see them socially, and I know their children. It’s old-fashioned, but I think to know someone really, really well, to know what’s going on in their lives, means you know when they’re focused. […] But let me tell you, we don’t always get it right!” Boardman laughs. “But we get it right more often than we get it wrong.”
The best ideas
Still, Boardman’s experience as one of the very first hedge fund company founders means he has a keener eye than most. “When we started in 1988, it wasn’t even a cottage industry. There were 600 hedge funds and only 100 of them had more than $100 million. Today, in some regards, you could say it’s become the tail wagging the dog, investment-wise. The industry has got some very, very, very, very smart people.”
A commitment to innovation is arguably a key factor in Optima’s success over the years, as the company has, despite its resistance to risk, presented fresh investment ideas at times when few others were doing anything like it. This includes the Japan fund launched with Platinum Asset Management founder Kerr Neilson, and a healthcare fund with David Chan of Jennison Associates, “a super brilliant guy”. The award-winning ‘Best Ideas’ fund gave Boardman’s top managers the chance to execute their number one niche convictions. Now, Optima has established a fund of American farmland, diversified across geographies and types of crop: “Our plan is to actually take it public. People will be able to invest in farmland instead of having that as a different asset class, and not having the disadvantage of it being illiquid. I think that’s an innovative idea.”
Asked if his experience has left him immune to being surprised, Boardman seems to think it has, but he is quick to point to the position the hedge industry is currently in: “The awful blow to the whole investment industry was the Madoff scandal – I would say we’re still not fully recovered from that.” He thinks about it for a moment. After the Madoff scandal people would ask him how the business was doing, and he’d respond by telling them the funds’ gains. “Then I thought to myself: ‘They probably don’t believe me! They probably think I made the number up!’” He cracks up. “It changed the credibility of the industry. Not to be boastful, but if something’s too good to be true, it usually is. We have a whole set of rules before we invest, and it’s really not rocket science. One rule is that we insist that whatever hedge fund we’re investing with uses one of the top accountants to do their audit.” Madoff’s auditors were in a suburban strip mall. “So yes, we knew him. Yes, we looked at it. Yes, we were impressed with the consistency of the claimed returns. Did we invest? Of course not.”
The best managers
In Europe, one of the consequences for the hedge fund industry in the aftermath of 2008 has been an increased focus on transparency and liquidity. While expanded transparency is “universally appealing” and is happening across the board, says Boardman, increased liquidity is an effect felt more in Europe than in America. Boardman points to how the first hedge fund, founded by AW Jones in 1949, only allowed investors to get in and out once a year, in part to prevent them from acting out of greed and fear. “The Europeans have never really liked that, but the American institutions have accepted it pretty well. […] If anything, I would say the trend towards liquidity [in European funds] has calmed down a bit, and if anything it might be changing back to less liquidity.” Boardman thinks for a moment. “The best managers in the world, by and large with very few exceptions, don’t offer instant liquidity. I’d rather be with the best manager.”
While the office is under strict instruction to absolutely interrupt if they ever need him, Boardman does take time away from work on occasion. “I visit my wife’s family in the south of Spain every summer. This year, a friend has a yacht which we’re going to be on, cruising around Majorca. That will be lovely, I’m looking forward to that.” He pauses. “But two weeks is max before I get itchy! I love what I do.”
Part of this passion for the work comes from the thrill of being surrounded by “some of the smartest investment brains in the world”. Boardman is also active in charity, having donated a dormitory to Stowe, his old school. Optima also has a philanthropic foundation that benefits from part of the fees on one of its funds. “It’s very, very nice to give back. But the real honest answer, I just love my work. Love it.”