Former Macquarie Group star stockpickers Patrick Hodgens and Blake Henricks see an abundance of opportunities across equity markets, as they kick off a $7.5 billion raising across two new boutique funds.
With the Macquarie shackles removed this week, they are now free to contact former clients under the banner of their firm Firetrail Investments, which is backed by ASX-listed Pinnacle Investment Management.
The two initial funds have received ratings from Zenith with the Firetrail Australian High Conviction Fund labelled “highly recommended” and the Firetrail Absolute Return Fund rated “recommended”. They have been open to new investors since March.
While boutique firms come with a new set of challenges, Mr Hodgens is positive on Firetrail’s prospects for funds under management and the broader investing environment.
“It is as good as it’s ever been,” he said. “The opportunities since we’ve left Macquarie are just as abundant.”
Mr Hodgens said plumbing supplies group Reliance Worldwide, which was a large holding at Macquarie, remained the conviction fund’s second-biggest holding. Reliance on Thursday announced the $1.22 billion acquisition of a UK plumbing group.
Firetail’s high conviction fund will have a limit of $6.5 billion with about $3.5 billion of that allocated to institutional investors and the rest to retail.
“We think we’ll fill up [the institutional fund portion] relatively quickly whether that’s 12 or 24 months remains to be seen,” Mr Hodgens added.
The smaller fund will target $1 billion from predominantly retail and high net worth investors over three to five years. In the current environment, investors will be expected to closely scrutinise the fees.
While it’s a well trodden path for high-profile fund managers to leave larger shops and set up boutiques, it’s often a hard slog. Several groups including Pinnacle, ASX-listed Challenger and Bennelong Funds Management hold stakes in a stable of managers and provide back office and other services under an incubator model.
At the time, Mr Hodgens was head of Macquarie’s local listed equities group, which sat within the asset management division. Mr Henricks was a portfolio manager who jointly oversaw the Macquarie High Conviction Fund with Mr Hodgens.
Firetrail begins life with 10 employees and all investment staff have equity in the firm and co-invest in its strategies.
The team previously managed the Macquarie High Conviction Fund, which delivered 10.6 per cent per annum net of fees from inception in late 2005 to October 2017.
They also have experience in managing so-called equity market neutral strategies, including the Macquarie Pure Alpha Fund.
The Firetrail high conviction fund will be benchmarked at a margin above the S&P/ASX 200 Accumulation Index while the absolute return fund is pegged at a margin over the central bank’s cash rate.
“The main reason for moving to a boutique was to remain as a team and remain stable,” Mr Hodgens said.
“If the business grows every individual is rewarded for that and it gets everyone motivated… At Pinnacle the time from a great idea to decision is very quick.”
Firetrail staff will own 76.5 per cent of the funds manager and Pinnacle the remaining 23.5 per cent.
Pinnacle managing director Ian Macoun said: “The Firetrail Investments team are a high quality, experienced and passionate team… The partnership is further evidence that the Pinnacle business model is attractive.”
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