Blackstone courts bold trades for new fund

Blackstone is preparing to launch a “super” hedge fund to cherry-pick the best trades from the hundreds of third-party hedge funds it invests with in return for paying them a commission.

The new vehicle will invite managers with whom Blackstone already invests via its $48bn fund of funds platform to submit their boldest and most interesting trading ideas in return for a fee. It will be run by former Duquesne Capital partner, Greg Geiling.

Blackstone declined to comment.The fund will raise eyebrows in an industry known for its secrecy. Managers’ reluctance to disclose details of their trades or portfolios has often been stretched to the point of nervous paranoia: even big investors can be left unaware of what a manager is doing with their money.

“It’s a sort of Harlem Globetrotters’ fund of the best ideas from across the spectrum,” said one person familiar with the plans – comparing the project to the famous US exhibition basketball team.

Third-party fund managers are incentivised to hand over their ideas because risk constraints within their own groups often mean they can rarely gamble as much as they would like to on their best trades.

With investment yields at lows worldwide, Blackstone believes that the appetite for risk and big returns from hedge funds is growing. It has already quietly been running the new fund as a prototype open to investments from its biggest institutional clients for several months, during which it has outperformed the average hedge fund.

Pressured by volatile markets, sweeping new regulations and a more conservative, institutional investor base many hedge funds have struggled in recent years to pull off big returns.

According to Hedge Fund Research, the average hedge fund manager has made only 11 per cent over the course of the past three years combined.

Blue blood hedge fund billionaires such as George Soros and Louis Bacon havereturned clients’ capital, while others have quietly hunkered down and now eschew the kind of venturesome bets that formerly earned the industry its reputation for pluck and rapacity.

Recent bets that the fund has taken include trades to help reduce banks’ capital ratios, short positions against the yen, activist corporate positions and holdings of US mortgage bonds.