David Bonderman amassed a $3 billion fortune in private equity for sophisticated investors. He’s now selling hedge fund strategies to the masses.
Bonderman, whose TPG Capital has owned companies such as Continental Airlines and retailer J Crew Group Inc., is using a family office that manages a portion of his money -- Wildcat Capital Management -- to back a startup investment business. Infinity Q Capital Management is offering retail and other investors a version of the hedge fund programs it uses for the billionaire, said James Velissaris, chief investment officer for the new firm.
Run by Wildcat employees, Infinity Q can sell products such as liquid alternative mutual funds to outside investors. It means Bonderman, 72, can profit from the expertise of his personal money managers, who in turn can earn more money.
“Families recognize that over time it’s sometimes valuable to turn the services they created into a business,” said Bill Woodson, head of the North America family office group at Citigroup Inc.’s private bank.
Bonderman, known as Bondo, built his wealth buying, fixing and selling companies. Wildcat was set up in 2011 to manage his money and cater to a small group of his friends and relatives. The family office now oversees $1.3 billion, according to a regulatory filing last week, with holdings including public stocks and venture capital.
Wildcat shares its name with the location of Bonderman’s home near Aspen, Colorado. Leonard Potter, who previously managed private equity investments for George Soros, runs and is the owner of the Fort Worth-based firm, allowing Bonderman to focus on TPG, the $67 billion firm he co-founded in 1992 with Jim Coulter.
The family office’s initial focus was improving the performance of its hedge fund holdings, according to Velissaris, a former Harvard University football player who studied financial engineering and economics. The investments were moving in the same direction during periods of crisis and would be difficult to quickly sell, he said.
They pulled money from outside managers and started overseeing the investments directly, using quantitative methods to bet on themes including macroeconomic trends, volatility and long-short equity. Since August 2012, Wildcat’s hedge fund strategies have returned 15 percent annually, and the pool grew to $110 million, Velissaris said in an e-mail.
Wildcat decided the techniques could fit within mutual funds known as liquid alternatives. It started New York-based Infinity Q last year and the firm now oversees $51 million. A Bonderman family entity owns at least 25 percent of Infinity Q and Potter is chief executive officer.
By offering liquid alts, Infinity Q is trying to tap into one of the fastest-growing areas for money managers. The mutual funds aim to give investors access to complex strategies that can use derivatives and borrowed money, and still let investors withdraw their money on a daily basis. The funds attracted a record $16.5 billion last year, according to Morningstar Inc., raising total assets to about $158 billion.
“We think the hedge fund industry is undergoing a significant change due to a high fee structure and several years of underperformance,” Velissaris said.
Infinity Q’s Diversified Alpha Fund has an upfront sales charge of as much as 5 percent and an annual expense of 1.99 percent for its Class A shares, which require a $1,000 minimum investment. The fund has gained 1.7 percent this year as of April 2, trailing 63 percent of peers, according to data compiled by Bloomberg.
Howard Marks, co-founder of Oaktree Capital Group LLC, is less excited by liquid alternatives.
’’They’re supposed to deliver performance comparable to other alternative investments without the illiquidity they entail,’’ Marks wrote in a memo to clients March 25. ’’To me it sounds like just one more promise of something for nothing.’’
Infinity Q plans to broaden its offerings to funds using volatility and macro strategies, Velissaris said. It’s also received requests for tailored accounts that would employ their techniques, he said.
For Bonderman, who got his start in finance working for Robert Bass’s family office in the 1980’s, Infinity Q is just one of a range of investments he’s made in recent years outside of TPG and private equity. He’s backed online lender Kabbage Inc., and Kite Pharma Inc., a developer of cancer drugs that went public last year.
“Bonderman has had the itch to expand into investment areas beyond what TPG is confined to,” said Erik Gordon, a professor at University of Michigan’s business school. “He definitely has the money.”