Outlook for the Fund of Hedge Fund Industry
August 31, 2021
In this episode of Engaging Alternatives Spotlight, Elana Margulies-Snyderman, Senior Manager, Publications, EisnerAmper, speaks with Luis D’Amato, Partner and Portfolio Manager of Aston Capital Management, a Florida-based multi-family office, which also manages a multi-strategy fund of hedge funds.
He shares his background of how he got into investing, his outlook for the fund of hedge fund industry, including the greatest opportunities and challenges in the space, how he is inspiring more Latinos to foray into money management, and how his firm is embracing Diversity Equity & Inclusion.
EMS: Luis, tell us a little about your firm and how you got to where you are today.
LD: Well, I was born in the Netherlands. My father was studying there and then my family moved back to Brazil when I was just eight months old. So I started working in finance when I was 19 years old only, as an intern while I still was in college. In the company that I worked for 20 years, it's called Hedging-Griffo. My first 14 years there, I was trading Brazilian equities mainly for U.S. Institution. Later, I moved to the asset management side of Hedging-Griffo, initially trading equites as well, and later being responsible for investors relation and business development. We sold the company to Credit Suisse in 2007. It was a long process. In fact, it started in 2007 and only finished in 2011. So I was one of the many minor shareholders of the company and I had to face a total of eight year non-compete, which is pretty much the longest I've heard about it in the history and which ended only 2015.
So when I left in 2012, I was just after we complete the sale because I have no interest in working for the bank without having a stake in the business, as I had for the previous 20 years. I moved to a small family office in Brazil with two other former Hedging-Griffo partners and stayed there until 2014. In 2014 finally, I moved to the U.S. to start my MBA at Kellogg, which I completed in 2016. During my MBA and before my non-compete was over, I thought a lot about what to do next. One day, I was talking to my partner, Eduardo Brenner, which hired me in Hedging-Griffo when I was 19 years old, about the future. We got to the conclusion that there was a lot of Brazilian high net worth families without the proper assistance for the international portfolio. Basic relying on institutions with a ton of conflicts of interests. So during this conversation, as Aston Capital was basically born and we decided to create the company and to focus on wealth management for these families that were an unattended in the U.S.
EMS:Wow, Luis, very interesting background. So I wanted to ask you as a fund of hedge fund manager, the industry has transformed a lot over the last several years with allocators having various outlooks on this space. I wanted you to share your outlook and where you see the greatest opportunities today.
LD: Yeah well, truth to be told the fund of hedge fund industry is a tough business for many reasons, right? The multiple layers of fees is a challenge for the performance. There's also the fund of hedge fund industry also have fierce competition from pressing investment. It's worth to mention that this famous eight year bet between our Warren Buffet and Protege Partners where Warren Buffet ended winning the bet of eight years, having significant better returns in passive funds than the selection of Protege Partners of hedge funds.
In addition, we're trying to move away from long short equity center, searching for more opportunities in liquid investments in the Aston Fund. Not that we don't like long short equity strategies, we still have a couple of high conviction managers, but there's a lot of competition out there. And as I mentioned before, it's hard to beat passive investments, the long wrong because there are fees. So liquid investments on the other hand, if for it to be a good source of alpha with very decent yields for our wealth management clients portfolio. And we decided to allocate part of Astons Funds portfolio in these strategies as well.
EMS: Luis, you're really a role model and inspiration to Latino's being a money manager. And the fact that less than 1% of assets are managed by Hispanic owned firms. I just wanted to hear your thoughts on what you're doing to motivate more Latinos to go into money management.
LD: Well, there's no shortage of things that can be done to champion more Latinos to foray into money management. And Miami is a great place to be and to develop their career, right? There's a robust network of prominent established money managers and wealth managers that can serve as mentors to up and coming Latinos in the field. And I'm also proud to serve as a mentor for many of them.
EMS:Great Luis, and on a similar topic, diversity equity inclusion has also been top of mind for the alternative investment industry the last year plus, and wanted to ask you what your firm is doing as a whole to embrace this.
LD: This is correct, Elana. DEI has been a top of mind for the alternative investment industry and my firm is being proactive to make sure we are always one step ahead. We are always working to increase diversity in our team seems to be that diversity is a key for innovation, right? As research has proven many numerous times. As I previously mentioned, being Miami, we are proud to have diversity of robust Latina investment manager community here. The challenge though is to keep the diversity and not to be a Latino exclusively firm, as we are in Miami and most of the talents that we find here at Latin origins.
EMS:And Luis, I'd love for you to share with us your future plans for your firm.
LD: Well, my plan, our plan as Aston Capital is to continue to grow slowly and keep being nimble and agile while staying focused on providing the best service for a small number of clients. I don't foresee the company being a large company with a lot of employees and attending several clients. We're a small team focuses small group of large clients.
EMS: And Luis, are there any final thoughts you would like to share with us?
LD: Yeah, I think it's something that should be considered as like investing is always evolving. As that famous cartoon, Who Moved my Cheese? We can see this in for a lot of value investor managers that have a lot of success during the 80's and the 90's market changed, things evolved and the way that we used to analyze companies in the 80's and the 90's not necessarily are going to be successful again, busier. So this is a challenge to be updated that you understand what the market's changing and what should be done next to be a successful manager.
Low interest rates environment is very challenging as well as you know, with zero interest rates, everything goes up. And so we have to pay attention and get ready for the next bubble that will burst because the zero rates are a very prone environments to creating more bubbles in the future.
EMS: Luis, I wanted to thank you for you sharing your perspective with our listeners.
LD: Thanks for having me Elana.
EMS:And thank you for listening to the EisnerAmper Podcast series. Visit EisnerAmper.com for more information on this and a host of other topics and join us for our next EisnerAmper Podcast when we get down to business.