Dominique Strauss-Kahn, the former head of the International Monetary Fund, has kicked off a drive to raise funds for a planned $2 billion global hedge fund to be run by the firm he joined last November.
The last big headlines he made were in a decidedly different direction: for sexual assault allegations by a hotel chambermaid in New York, which caused him to resign from his post at the IMF, and for an upcoming trial on “aggravated pimping” charges stemming from parties with prostitutes in Lille, France. However, DSK, as he is generally referred to, has moved on into a new professional phase in his career.
Late last year he joined Luxembourg investment management firm Anatevka (the name is better known in the U.S. as that of the shtetl in which Tevye lives in the musical Fiddler on the Roof) as chairman of the board. The firm then rebranded itself as LSK & Partners, after the initials of its founder Thierry Leyne and Strauss-Kahn. It hopes to capitalize on DSK’s familiarity with the movers and shakers in global government and finance.
DSK is now on the move, seeking investments for the proposed fund, beginning in China, where he hopes to coax investments from institutional investors and high-net-worth individuals. He and his daughter, Vanessa Strauss-Kahn, who is an economist, will manage the fund. DSK has no money management experience and thus no track record, something many institutional investors require before considering investing with a money manager.
While DSK may have no experience managing funds, Leyne, a civil engineer and a member of SFAF, the French Society of Financial Analysts, has a long history of involvement with investment companies. In 1994 he founded Assya Capital, and in 1996 followed that with Axfin. He and the other founding partners of Axfin brought it just a few years later into the German group Consors Discounts Broker AG.
In 2010, Assya Capital and Global Equities Capital Markets merged to become Assya Compagnie Financière, and Anatevka—now LSK & Partners—was created and became active in private wealth management.
Mohamad Zeidan, the firm’s chief operating officer, said in a Shanghai interview about DSK’s presence in China that “China plays and will play a predominant role in this fund.” Once the fund has received regulatory approval from Luxembourg, it will be able to officially raise money. Zeidan said, “We have met with the largest groups in each sector and I’m talking to the financial sector, insurance companies, bankers, financial groups, private and public.”
DSK, who has been serving as special economic advisor to the Serbian government, also plans trips to the Middle East and Russia in search of investments for the new fund. Alexander Mearns, CEO of Eurekahedge, an alternative investment funds research house that specializes in hedge fund databases, said that “DSK is certainly well known internationally so that should help in opening doors to some of the world’s largest institutional investors and help in raising assets.”
A macro hedge fund seeks opportunity wherever it sees potential, whether it be in bonds, stocks, currency, derivatives or commodities. According to Hassan Mohammad, analyst at Eurekahedge, “Global macro hedge funds have posted annualized returns of almost 9% since 2000, and have recorded net asset flows of $60 billion post the global financial crisis. This is almost 43% of the capital allocated to the hedge fund industry globally since 2008.”
Mohammad said, “Against this backdrop, a global macro hedge fund focused on emerging economies, especially those in Asia, holds great potential. Themes such as China’s switch to a consumption-led growth model and the recalibration of regional economies in a post-QE environment will unlock significant opportunities for macro hedge funds in the region.”
John Blank, chief equity strategist for Zacks, said that while DSK provides one of the three legs of the stool of this venture, compliance and custodial issues and the actual management of the invested funds, are what could make or break the new fund.
“Compliance has much higher custodial issues: where to put [the money], how to invest it, whether it will be commingled—whether returns are audited or verified—and pension funds and [other similar groups] will want that. [They’ll look for] compliance that includes global investment performance standards (GIPS),” Blank said.
Investors will also want to know about the managers’ investing track record for their macro strategy, Blank said, particularly in a volatile economy. “What is [the fund’s macro strategy]? What are the risks? How do they manage them?”
Blank said of DSK’s efforts to garner $2 billion in investments in the new hedge fund, “Can he do it in time? Absolutely. He’ll do fine and it will work,” he said, adding as long as there’s a reasonably good compliance regime that verifies the books and makes sure there [are] quality auditing and custodial efforts.