Guggenheim Global Trading, a subsidiary of closely held financial-services firm Guggenheim Partners LLC, plans to hire as many as 10 portfolio managers this year to expand its multistrategy hedge fund.
GGT, which employs 15 portfolio managers, may have as many as 25 by year-end, according to Loren Katzovitz and Patrick Hughes, partners at Guggenheim Partners. It’s in talks with several candidates, Katzovitz and Hughes said last week in an interview in New York.
The trading unit will add managers in sector-specific long-short equity strategies, including utilities, energy and health care, Katzovitz and Hughes said. GGT seeks to attract managers who want to focus solely on investing, instead of the business and operational responsibilities that accompany opening a hedge fund, such as asset raising, that have become more difficult after the 2008 financial crisis, they said.
“A lot of these guys are attracted because they don’t want to have to set up their own infrastructure and raise all the capital,” Katzovitz said.
GGT, which started trading in February 2012, has more than $500 million in assets from Guggenheim Partners and the commitment may grow to $2 billion over the next several years, Katzovitz and Hughes said. Guggenheim Partners, which has headquarters in Chicago and New York, included members of the Guggenheim family among its initial investors and now has more than $160 billion under management.
The multistrategy fund runs long-short equity, event-driven, merger-arbitrage and quantitative strategies. Long-short equity, whose managers can bet on rising or falling stocks, comprises about 60 percent of assets. Event-driven funds seek to capitalize on corporate events such as spinoffs, restructurings and bankruptcies; merger-arbitrage managers buy and sell the stocks of two merging companies to profit on the price discrepancy; quantitative funds use mathematical models to decide when to buy and sell.
The unit’s managers have an average of six years’ of experience as portfolio managers, Katzovitz said. The fund seeks to hire those who can produce “high single-digit returns” based on a maximum of 15 percent to 20 percent net exposure, they said. Net exposure is calculated by subtracting the percentage of a fund’s short positions, or bets on falling securities, from its long holdings, or wagers on rising stocks or bonds.
Managers must comply with investment guidelines agreed upon with Katzovitz and Hughes regarding net and gross exposure, they said. Managers are also required to invest a portion of their profits in GGT and have the option after two years of owning an equity stake, they said. The more profitable a manager, the larger the equity share he or she can take. GGT’s portfolio managers receive about 15 percent of profits in performance fees, they said.
GGT this year may start an office in London focused on European strategies that would mirror the fund’s U.S. operations, Katzovitz said. It’s also analyzing opportunities in Japan.
Katzovitz and Hughes, both 51, have worked together since 1993 and started building GGT in 2011. It employs about 60 people, half of whom are portfolio managers, traders or analysts, Katzovitz and Hughes said. The rest make up the operational, legal and compliance staff.
Guggenheim Partners, whose chief executive officer is Los Angeles Dodgers Chairman Mark Walter, set up GGT because regulatory changes made it easier to hire experienced traders, Katzovitz and Hughes said in 2011. The so-called Volcker rule led banks including Goldman Sachs Group Inc. and Morgan Stanley to shut or spin off proprietary-trading units at the same time as new registration requirements made it harder for traders to start hedge funds.
Katzovitz and Hughes met while at securities firm Kidder, Peabody & Co. in 1993 and worked together at Royal Bank of Canada, where Katzovitz was co-head of global equity derivatives and proprietary trading and Hughes helped lead the alternative-assets business.
They joined Guggenheim in 2002 and started a hedge fund-of-funds managed-account platform called Guggenheim Advisors. The company sold 71.5 percent of Guggenheim Advisors to Bank of Ireland Plc in 2006 and repurchased it in 2009.