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September 30, 2003

Hedgies for the Pros

By Kathryn M.Welling

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Portfolio manager John Boich clearly knows his way around the institutional investment scene, having navigated quite successfully from the Boston Co. to San Francisco's late, lamented Montgomery Asset Management, where he steered several of that group's large international funds into the ranks of top performers. Now John has taken aim at the alternative investment arena with Avera Global Partners,

a dollar-neutral long-short hedge fund firm he founded in July 2001. But John's also sticking to what he knows. Avera has been structured, from day one to meet the special requirements of institutional plan sponsors as they venture into the wilds of hedge fund land. So far, all its $40-plus million in assets have come from the institutional set, and John and his team have delivered as promised. Not by hitting the cover off of the ball. But by staying in the game, without swinging for the fences, he explained to me last week. -KMW

Why not start by explaining how you're trying to set Avera Global Partners apart from the hordes of other hedge funds in the universe?

The one thing that is demonstrably different is that our global long-short equity fund's return stream is negatively correlated to those of your average long-short manager, based on surveys by consultants like HFR or Tremont or any of those guys. By design. It's what validates our approach to creating an institutional fund characterized by consistent returns, low annual variability and a low correlation to the major indexes.

You put real emphasis then, on attracting institutions as clients?

Absolutely. Total. Unlike most hedge funds, Avera Global Partners has been built specifically to serve institutional clients. The first thing we did coming into this business was get registered as an investment adviser with the SEC. We've also assumed a lot of backoffice operational expenses to make sure that things like the daily reconciliation of our positions and trades and such are top-quality. We just want to be triple-sure that nothing ever goes wrong there.

You mean it takes more effort to hold institutions' hands than it does to pamper the rich?

That's not as pejorative as you make it sound. When a public pension plan sponsor looks into investing in our fund, his first job is not to blow up his plan's capital. So their first concerns are risk control, operations, business risk, infrastructure. We don't have any money from the traditional investors in hedge funds, either high net worth individuals or funds of funds. Now, if one wanted to give us $100 million tomorrow, I might have to think twice about this, but we have intentionally organized our marketing around institutions, only 25 percent of the hedge fund market.

Yes, but that 25 percent is up from practically nothing just a few years back.

What has been amazing to me, in making the move from traditional long-only institutional asset management as we practiced it at Montgomery Asset Management, to alternative institutional asset management, at a time when the institutional side of the alternatives world is really still an infant, is that there is a whole new breed of consultants emerging.

Because being able to talk the talk is at least as important as actual performance when hedge fund managers compete in institutional beauty contests?