Former academic and Danish pension fund manager Peter Dencik has reinvented himself once again. He has recently taken over as chief executive of hedge fund operator Key Asset Management in London, following his retirement from Singer & Friedlander Investment Management.
Key is a fund of hedge funds provider that has been operating for over 15 years. It was founded by Morten Kielland, a Norwegian, who is still the major shareholder.
“I think it is going to be a very interesting challenge,” says Dencik, who is more than ready for it.
“Key has been growing strongly in the last few years and has $1bn in assets.” This is set to continue by building on the fund of hedge funds’ 14-year track record without a negative return in any year.
Dencik sees his role as taking the company to the next stage – making it attractive to institutional investors, including pension funds and family offices. “What investors expect from hedge funds nowadays is very different from what it was 10 years ago. The demands have become more sophisticated, just as the investors have.
“We still want to retain the boutique approach but to put institutional-level structures in place.”
The firm has a good relationship with the high-net-worth market and now wants to expand beyond this. These investors have been serviced from Key’s offices in New York, Geneva and Stockholm, in addition to London. He reckons this is a good network of bases for tackling the European markets.
In Europe, allocations to hedge funds by institutions are low compared with the US, he says. “I think the fund of hedge funds is an attractive way in to hedge funds for pension funds, particularly where there is a long and consistent track record.”
Dencik sees as his main challenge the introduction of a “more institutional discipline” to Key. This is not just an exercise in making Key more presentable to that market, it will mean changes. “These include performance monitoring, client reporting, restructuring the company and a professional board. It is the first time Key has had a CEO function.
“There is a lot of substance behind what we are doing as we make the transition from a family-run business to one that has an institutional focus that can exist outside its creators.” That requires a different leadership role.
The company’s flagship fund is Key Hedge Fund Inc, which consists of 29 underlying hedge funds in the multi-manager, multi-strategy mould. “That fund has never had a losing year since launch – though within individual funds each year there will be winners and losers, which is the whole point of a fund of funds.” So though there will be hedge funds with very different volatilities, the end result should be a very steady return stream. “Our objective is 8 to 12% per annum – over 14 years it annualises at 9%.”
Key also runs single-strategy funds. “Typically, these funds include a small proportion of other strategies to help smooth out the returns.” These usually have a geographical focus, such as the European equity hedge fund. “Incorporating this fund into a pension fund’s equity portfolio can give a degree of volatility and risk reduction and contribute to the alpha generation from European equity markets.” There are global and Asian geographical funds as well.
In addition, some niche funds cover areas such as distressed debt funds. “We think these specialist funds will be attractive to high-level institutional investors. Key wants to be innovative by responding to opportunities in the marketplace. One of my roles will be to look at these opportunities and help turn these into products.”
Key has some pension fund money at the moment “but not yet in the quantities we would like”. Dencik believes that demand is probably stronger among Dutch and Belgian funds than those from the UK.
One structural problem that Dencik perceives is that the existing fund range has been set up offshore.
“We want to create UCITS III funds with the European passport for
A new investment team is being brought on board to run the funds, including researching and monitoring the underlying managers. The job of the team at Key is to identify a suitable mix of strategies and the best available hedge funds in each strategy and blend them into a fund of hedge funds suitable for Key’s clients. “It is a top-down and bottom-up approach,” he adds. “There is very little difference in my view in running a European equity portfolio and a fund of hedge funds.”
Dencik feels that very often the best performance is obtainable in the early stages of a fund’s life. “As Key has been established for a long time in hedge fund terms it is well known and has access to new players.”
His original contact with Key was when at Singer & Friedlander he was involved with the selection of Key as one of the hedge fund groups the bank decided to include in its offering. Little did he think….