Hedge Magazine, September 2015. Original article p60-62.
Erik Serrano Berntsen, CEO and co-founder of Stable Asset Management
Those cufflinks Erik Serrano Berntsen is wearing, are they sharks or dolphins? It’s hard to tell, yet those are two very different impressions for a financier to wear on his sleeve. It’s a muggy summer morning in the Mayfair offices of Stable Asset Management, and I’m pondering this as I wait for Serrano Berntsen to return – he’s getting a copy of his book. Stable, the hedge fund seeder firm where Serrano Berntsen is CEO and co-founder, has been in this elegant white space since January, just before rebranding. “Oh it was very painful to come up with the name,” says Serrano Berntsen, as he hands me the book. “Tell me, did you first think of a horse stable, or stability?” The name reflects both: a stable of funds, and a stable investment. The CEO looks the part in a dark suit with pocket handkerchief, yet not too serious with two shirt buttons open and artfully tousled hair. Later he’ll apologise to the photographer for looking “a bit scruffy” – he’s due for a haircut this weekend.
I flick through the book, ‘A Guide to Starting Your Hedge Fund’, co-authored by John Thompson. Even at first glance it appears dense with practical information. “It’s a good introduction, pretty broad,” says Serrano Berntsen. The text is intended for those with genuine interest in the sector, as there’s little in the way of inspirational fluff. Although there’s the occasional quote by luminaries like Jerry Maguire and Gordon Gekko: “Those are a bit tongue in cheek! We don’t take ourselves too seriously.” I ask if I’ll be able to start a hedge fund after reading the book, and to my surprise he claims I would: “It’s not rocket science. Insiders make it look harder than it is.” Investments are an art, asserts Serrano Berntsen, but the business side of things, that’s science. “So if you read that book, you’ll at least know which questions to ask.”
Stable Asset Management, which started in 2009 as Energy Alpha Strategies, looks for emerging managers who haven’t run their own fund before. They like it when traders have an entrepreneurial streak: “With a new hedge fund, you’re basically starting from scratch. It’s like a startup: three, four people in a small office, figuring out how everything works,” says Serrano Berntsen. That entrepreneurial spirit is particularly important when a manager has come from a big company, where they may be used to a big support network to help with things like research or compliance. “Occasionally some of them are arrogant, thinking all those people in the back office were an expensive waste of space, and it’s all about them!” The star manager may get all the attention, he adds, but they can’t do it alone: “It’s not just about you. It’s about starting a business as part of a team, and if you don’t understand that, you won’t succeed.”
Stable seeds about one new firm a year, most recently backing a team from Millennium to set up Arctic Blue Capital. “They wanted to spin out and have their own fund. We decided their strategy of macro systematic [investing] would do particularly well in the next couple of years.” The way Stable chooses which fund to back is by choosing which strategy looks best for the current climate: “Managers at the top of their game are relatively similar, so it’s easier to choose the tide than the boat.” Stable gets pretty hand-on with its charges too, says Serrano Berntsen: “We’re involved in all stages of the fund’s lifecycle. We [participate] at the beginning with brainstorming about strategy and risk parameters, and then we set up the business side: the limited company, offering memorandums, directors, lawyers, accountants, offices – often they’ll sit here with us [for a while].”
Stable has invested in seven funds to date, and currently has an interest in four – those four add up to $1.5 billion in assets. The biggest investment so far has been $20 million, as the company focuses on specialist funds; this avoids competing with the big seeders who put up three figure sums for more mainstream funds. “Right now we’re looking to do an equities seed, with a spin: we’re looking for a female manager.” This is partially because of a volume of research suggesting women managers often outperform men – that’s found to be the case both in hedge funds and retail funds, asserts Serrano Berntsen. Then there’s the fact that investing in a woman fits the company’s specialist mandate: “We see it as a specialist strategy, because the fund will behave differently from our other portfolio managers.”
Serrano Berntsen grew up in Madrid, but you’d never know that from his accent: “Yes I get that a lot. Maybe it’s when you learn the language at an English school abroad? That, and the Norwegian twang.” The latter is the influence of his mother, a diplomat at the Norwegian embassy. His Spanish father was a doctor by training and had his own market research company. Serrano Berntsen first came to Britain to read politics, philosophy and economics at Oxford, and he’s been in the UK ever since – except for an MBA in Chicago and a highly recommended gap year travelling the world. After school, Serrano Berntsen spent a few years at Bain as a cross-sector consultant, before setting up what is now Stable:
“I saw what I thought was a good business opportunity,” he says, “and I also wanted to try and build a business that, looking back, we would be proud of.” He was just 26 when this happened, making him 31 now. But he won’t accept that he’s accomplished for his age: “There are people out there who’re far more successful, at least if your definition of success is financial gain. […] I find hedge funds tend to be a young man’s game, at least on the investment side,” he says. The biggest names tend to be older though, he adds, “because you need to have at least 20 years of being continually right to get that reputation. That’s very difficult to do.”
Stable Asset Management has its ducks in a row these days, but it wasn’t always easy: “I could tell you how difficult things were in the beginning, or about the times we messed up,” says Serrano Berntsen. The company started out in a windowless basement office, but it was on Pall Mall so it projected the right image. “Setting up in 2009 [meant] people thought we were crazy! The timing on the surface seemed pretty bad.” But it actually ended up working in the company’s favour, as the shake-up meant people were more willing to take calls from new names: “I think we got a lot opportunities because there was a moment – with dislocation came an opportunity to break in.”
I ask if he’s planning to stay in the hedge fund sector – he could technically make time for a whole second career? “Yes I suppose I could!” He laughs, but actually, ending up in hedge funds was a bit of a fluke: “I was looking at starting businesses, and it so happened to be hedge fund businesses. […] What excites me is finding people who want to do something new, set up something they’re proud of, make money for people but also create working environments that are rewarding.” His mother wants him to get a job at the UN though: “She wants people to do good in the world. So she’s a bit disappointed I’m not working for a supranational organisation.”
Serrano Berntsen lives in Notting Hill these days, with his significant other, Katherine. “She runs a fashion company, which is refreshing as there’s no ‘how big is your fund’ conversations there!” The couple loves to travel, but even more they like to eat: “Yes that’s pretty much what we do!” He laughs. London favourites include Israeli food at Palomar, and Barrafina, a Spanish restaurant. Then there’s Hedone, a Scandinavian restaurant in Chiswick, to balance out his two sides. Those places aren’t fancy, he assures me – it’s less about white napkins and more about the food.
We chat for a bit about how transparency is increasingly a factor in discussions about hedge funds – is that a generational thing? “Younger people are more willing to show they don’t know the answer, and how that’s not necessarily a bad thing. They’re more willing to ask for help. Maybe the older generation was more about having a facade of knowing exactly what they were doing,” says Serrano Berntsen. I ask if he feels like he knows what he’s doing, and his modest answer feels honest: “I like to think I’ll know better what I’m doing tomorrow than today? But things are going well, so I guess to some extent we know what we’re doing! I think it’s more about learning.” That’s part of the reason he likes investing in other people’s companies: “The broader you can keep your focus in life, the more fun it is. You have to specialise in an area, like finance, but it’s good if you can keep a bit of variety.” The moment seems right to ask about the mystery cufflinks, and Serrano Berntsen studies them for a second. “They’re sharks,” he decides, “though they might be dolphins?” They were a gift. “Maybe we can just call them fish? Or semi-aggressive dolphins!” He laughs. “I don’t want to pretend I’m too aggressive.”