ALPHA STRATEGIC'S OBJECTIVE
Alpha Strategic buys minority percentages of top line revenue streams from established Hedge Fund Management firms, using its own shares, cash or a combination thereof. Each transaction is structured to enable Managers to maintain total control of their businesses.
ALPHA STRATEGIC'S OFFERING TO PARTICIPATING MANAGERS
DIVERSIFICATION
Over time Alpha Strategic will acquire a share in multiple revenue streams from a diverse range of Managers, who use different investment strategies, to create an income stream that performs steadily in most market conditions. The key lies in selecting a complementary group of established and proven Managers who perform well at different times in the financial and economic cycle. The drivers of return and sources of risk vary from investment strategy to investment strategy. Trend followers and other trading strategies tend to do well in times of reasonably high volatility, whereas relative value strategies such as statistical arbitrage produce better results in markets with low volatility. Most equity long/short managers have a bias to being long the market, and as a result do well in bull markets, but can disappoint in bear markets. In a bull market, the opportunity set for the managers specialising in distressed securities investing is limited; however, in a weak financial and economic environment these managers come into their own. Alpha Strategic aims to acquire its income from a diversified range of strategies with the objective or earning performance fees in most market conditions.
As Alpha Strategic's portfolio of revenue streams expands, the risk reduces; the effect of this should be reflected in a higher earnings multiple being applied to our share price. Our future growth consists of persuading managers to swap a percentage of their volatile earnings in exchange for a percentage of Alpha Strategic's steady income stream.
Back to TopMULTIPLE
Most hedge fund principals consider that their private businesses trade on a P/E of one. Alpha Strategic currently trades on a P/E of 11. Since the middle of 2007, MAN Group has traded in a range of 5 to 21 times earnings. As more Managers join the Alpha Strategic fold, our multiple should rise to reflect our growing stability and diversity. Revenue surrendered by a Manager will be multiplied significantly and that value will be reflected in the Manager-Shareholder’s holding in Alpha Strategic.
Back to TopTAX ADVANTAGES
Subject to the precise structure of any transaction, rollover relief should be available to vendor managers and trading company shares quoted on AIM still qualify for business asset taper relief.
Back to TopSHIELD FROM FLOTATION HASSLE
Many larger hedge funds eye the prospect of floatation from time to time. Not many make the leap, largely because they believe the corporate governance regime to be onerous and they dislike the transparency required. Alpha Strategic is seen as a vehicle by which a partial flotation can be achieved; it shields Managers from remuneration committees, audit committees, brokers, journalists and all the other burdens that beset listed entities. Alpha Strategic takes responsibility for all this, leaving managers free to run their businesses as they see fit.
Back to TopRETENTION OF CONTROL
All Hedge Fund Managers flirt from time to time with large financial institutions in their search for distribution, scale and monetization of value. However, the lack of M&A activity in the industry points to a realisation that going back to a life lived under the strictures of the international banks and investment houses would stifle the business and possibly lead to conflict. Alpha Strategic does not intervene in the day to day management of any of its Manager-Shareholders. We structure transactions such that we are not involved in the profit and loss account of the companies in which we share revenue. We believe it is very important that the principals in the business retain control without interference and thus retain the incentives that drove them to success in the first place. We do not wish to be involved in decisions (and possible conflicts) about management compensation or overheads, hence our wish to acquire a share of top line revenue, and to maintain a purely advisory role.
Back to TopSTAFF INCENTIVISATION
Most Hedge Fund Management companies face significant difficulties devising long term incentive structures for staff. Revenue compensation is never enough, and sooner or later key staff members will look for capital involvement. Once options or shareholdings are acquired, frustration can again set in at the apparent likelihood of a capital event. Alpha Strategic can provide an efficient vehicle to create these incentives and a capital event, with the added bonus of leaving control of the business with the founders. In addition, cash flow difficulties associated with contingent bonus liabilities held on the balance sheet can be ameliorated using Alpha Strategic stock.
Back to TopONSHORE OFFSHORE PROBLEMS
Many firms find themselves in a tussle with Her Majesty’s Revenue and Customs (HMRC) regarding the percentage of their worldwide income that is attributable to the UK operation. HMRC has been getting tough and some big cheques have been written. Alpha Strategic allows Managers to bring income and profit onshore satisfying HMRC requirements while minimising the UK tax.
Back to TopCHARITABLE GIVING
A charitable gift of AIM shares is now permitted and can be easily the most tax efficient method of giving. Not only do higher rate tax payers get an immediate deduction against income at the 40% rate, but capital gains tax on the shares is also avoided. Hence a charitable gift of £1m of Alpha Strategic stock would result in an effective tax saving of around £500,000 to the donor.