(Bloomberg) -- Formula Growth Ltd., a Montreal-based hedge fund operator that has doubled total assets under management to C$1.2 billion ($891 million) over three years, is starting another fund focused on small and mid-sized U.S. stocks to meet growing demand from across the border.
Based in the Cayman Islands, the fund will seek to replicate the Formula Growth Alpha Fund, a neutral approach targeting consistent returns regardless of the direction of the market. The strategy has returned 3 percent this year through May after gaining 8.4 percent in 2016, according to Mathieu Boisvert, a vice president and manager of the C$300 million domestic fund.
“We had some requests from offshore clients to invest, but they didn't want to invest in a vehicle where they'd be subject to Canadian taxes,” Boisvert said in an interview. “Most of them are in the U.S.”
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Formula Growth is the latest Canadian hedge fund to seek investors abroad as the $3 trillion global industry, tarnished by poor returns and fund outflows in recent years, recovers some of its luster. Vancouver-based Delbrook Capital Advisors Inc. is also starting a hedge fund in the Caribbean tax shelter in July.
Niche Market
Founded in 1960, Formula Growth manages C$916 million in Canada's hedge-fund industry, which is valued at about C$40 billion. Canadians accounted for 90 percent of the firm's growth in recent years. The new offshore fund, open for business next month, already has a C$50 million commitment from an institutional investor whom Boisvert declined to identify.
By investing in a less crowded market like U.S. small and mid-cap stocks, the company can “find niche opportunities that much larger hedge funds wouldn't consider,” he said. Formula Growth charges 1 percent for management and 20 percent of profit for most of its strategies.
Returns from Formula Growth's four hedge fund strategies this year through May range from 2 percent at the main equity long-short fund to 8 percent at the Hong Kong-based Global Opportunities Fund, Boisvert said. That compares with 2.9 percent generated by the Russell 2000 index of U.S. small and mid-cap companies, and 4.7 percent by the Hedge Fund Research HFRI Equity Hedge Total Index over the same period.
To contact the reporter on this story: Colin McClelland in Johannesburg at cmcclelland1@bloomberg.net.
To contact the editors responsible for this story: Neil Callanan at ncallanan@bloomberg.net, Cindy Roberts, Andrew Blackman
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