Bloomberg News

Blackstone Said to Consider Backing Ex-SAC Trader’s Fund

September 23, 2011

(Updates with number of new hedge funds in 12th paragraph.)

Sept. 23 (Bloomberg) -- Ali Akay, a former trader at SAC Capital Management LLC, is seeking financing from Blackstone Group LP to start a hedge fund, said two people with knowledge of the matter.

Akay, 34, is in advanced talks with Blackstone to provide so-called seed capital for his fund, said the people, who declined to be identified because the discussions are private. Akay, in a phone interview yesterday, said he intends to start trading in December and that his London-based Carrhae Capital LLP will focus on emerging-market investments. He declined to comment on whether Blackstone will give him financing.

Some money managers have turned to Blackstone and other firms for startup financing, because after the 2008 collapse of Lehman Brothers Holdings Inc. roiled financial markets, investors such as pension funds sought stability in big, existing hedge funds. Two-thirds of the $118 billion of asset growth for hedge funds since 2009 has been at firms managing more than $5 billion, according to Hedge Fund Research Inc.

“I’ve been able to make money in all types of markets,” said Akay, who plans to restrict investments into his fund once assets under management reach $500 million. “What I’m excited about is that there are various dislocations occurring in the market and the prospect of having fresh capital to arbitrage these dislocations.”

Christine Anderson, a spokeswoman for New York-based Blackstone, the world’s largest private-equity firm, declined to comment.

SAC Capital

Akay in June left the European unit of SAC Capital, the $14 billion hedge fund founded by Steve Cohen that has produced gains of about 30 percent a year since it opened in 1992. Akay previously traded for Dallas-based HBK Investments LP, the hedge fund started by Harlan Korenvaes in 1991.

He also worked for Goldman Sachs Group Inc.’s Principal Strategies unit, the proprietary stock-trading team that shut down last year in response to new U.S. regulations restricting banks from risking their own capital on speculative bets.

Carrhae Capital’s six-person investment team will include two other former traders from SAC Capital. The hedge fund will invest in the stocks of companies based in emerging markets and companies that generate their profits from doing business in developing countries. Carrhae Capital derives its name from an ancient military battle in Akay’s native Turkey in which the Parthian Empire defeated the Roman Republic.

August Declines

The Roman general leading the campaign lost because of “arrogance, an inability to listen to his local allies, impatience and a lack of understanding of the local circumstances,” Akay said. “It reminds us that when you are going into emerging markets, you definitely want to know the local conditions and have a local network.”

Hedge funds focused on investing in emerging markets declined 4.6 percent in August, their worst month since May 2010, according to Hedge Fund Research. Hedge funds broadly fell 2.5 percent last month, according to the Chicago-based firm.

The losses were triggered by concerns about slowing global economic growth that prompted investors to sell assets of developing countries and buy holdings considered safer such as U.S. Treasuries.

Money managers founded 578 new hedge funds during the first six months of 2011, the best six months for startups since the first half of 2007, according to Hedge Fund Research data.

Blackstone-Backed Firms

Blackstone provides hedge funds with startup capital in exchange for a cut of a money manager’s fees and an equity stake in the company. Hedge funds, private pools that try to make money whether markets are rising or falling, typically charge clients 2 percent of assets managed and 20 percent of any investment gains.

Hedge funds that have received startup financing from Blackstone in the past two years include Taylor Woods Master Fund Ltd., Marcato Capital Management LLC and Senrigan Capital Group Ltd. Blackstone typically gives between $100 million and $150 million to hedge funds the company invests in.

Taylor Woods is led by George “Beau” Taylor, the former head of global commodity proprietary trading at Credit Suisse Group AG, and Trevor Woods, who previously oversaw global energy proprietary trading at the Zurich-based bank. Richard McGuire, a former partner at William Ackman’s Pershing Square Capital Management LP, started Marcato Capital last year.

Senrigan Capital, founded by former Citadel Investment Group LLC executive Nick Taylor, oversees about $1 billion after it started trading in 2009 with $150 million.

--With assistance from Michael Patterson in London. Editors: Steve Bailey, Jon Menon.

To contact the reporters on this story: Jesse Westbrook in London at jwestbrook1@bloomberg.net; Saijel Kishan in New York at skishan@bloomberg.net.

To contact the editors responsible for this story: Edward Evans at eevans3@bloomberg.net; Christian Baumgaertel at cbaumgaertel@bloomberg.net


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