The chief investment officer of New Star Asset Management Group, Alan Miller, has plans to expand hi...
The chief investment officer of New Star Asset Management Group, Alan Miller, has plans to expand his range of hedge funds.
Miller has managed his product, now called the New Star Hedge Fund, since it started as a paper portfolio in 1996. Since its formal launch as the Jupiter Hedge Fund in 1997, the fund has delivered an annual compounded return of just over 37%. Until January 2001, Miller was a main board director and the head of Jupiter's specialist division, encompassing institutional, unit trust and hedge fund products. His move to join John Duffield in his new fund management company, New Star (already managing more than £1.8bn), let to his £100m coming with him investors followed him out of Jupiter. A few weeks into his new job, Miller reports that he has seen more interest in hedge funds than he has seen in the entire previous nine months.
Miller's current fund is invested more than 90% in UK equities on a long/short basis. He said: "We will look at any medium to large firms as long as they are attractive," he said. He believes his consistent performance is down to a more cynical approach to the markets. "We're not frightened of having different views," he said. "We like to go long on cash-generative, good firms and short, using a combination of futures and CFDs (contracts for difference), on firms that are in semi-decline."
Situations that attract his attention include companies where a competitor may be coming up with better technology, where there may be obvious conflicts of interests, or where the shares are clearly overpriced.
His shorting practices are about to be beefed up now that he has signed up Deutsche Bank and CSFB as joint prime brokers.
Investors in the New Star Hedge Fund represent a wide range of the investing community, including funds of funds, high net worth individuals and a big UK insurance company with a strong commitment to the alternatives sector.
"Investors are looking for sound absolute returns in as low risk a way as possible," said Miller. "They are looking for long-term growth with a three- to five-year view."
Since arriving at New Star, Miller has appointed Tim Steer as assistant to the fund. Steer was an analyst at Merrill Lynch for nine years and took first place in the Extel survey of investment analysts in 1999.
In terms of risk management, Miller likes to keep leverage low, at the moment it is as low as it has ever been, with the position running at 80% long against 55% shorts. "We run the portfolio as if it were a market neutral portfolio," he added. He has also found it more difficult to get the shorts right than to be a long-only manager. "Shorting is much more dangerous," he said.
He tries to ignore market direction and keep the sector spread as low as possible. "We get information from a huge number of sources and occasionally alarm bells ring and I think 'I can make money here'," Miller said. He believes he does not trade as much as other managers and is a firm believer in avoiding the noise and the fuss that surrounds markets and market movements.
"Every time you get sucked in, you lose money," Miller said. He also believes that charts do not present an accurate picture. "Show me a wealthy chartist," he added.
Future plans include building a new team at New Star, together with the hunt for a marketeer to target funds of funds. He plans to launch his own fund of funds later in the year, together with one or two new hedge funds.
There will also be corporate acquisitions coming which may involve individual or collective hedge fund organisations. "We have no stated aim in terms of funds under management," he said. "We want a high-margin, well-diversified fund management business."
One of the biggest dangers for the hedge fund industry at the moment, according to Miller, is the number of organisations launching hedge funds for "the wrong reasons" normally to keep restless, ambitious staff who may not be suited to running hedge funds. "It is a huge minefield for large institutions," Miller warned.