Convergence, with a twist

Hamilton Lane recently hired former World Bank principal investment officer Francesco Mainolfi to run its hedge fund of funds business. In an interview, Mainolfi said that a more sophisticated level of ‘convergence’ may soon emerge in the private equity world.

The recent convergence among private equity firms, hedge funds and, to some extent, real estate investors has been a well documented trend in the alternative investment universe. Most of the discussion, however, has focused on the competition between – and cooperation among – the various parties:  Henry Kravis lambasting hedge funds as inexperienced operators, hedge funds poaching young talent and lobbing in bids on LBO deals or private equity firms teaming up with real estate funds to acquire operating companies with significant property assets. Yet there has been relatively little attention paid to how institutional investors could take advantange of this convergence.

That may soon change. And with more than $39 billion (€30 billion) of alternative assets under management, Hamilton Lane may be the firm to do so – after acquiring a controlling stake in hedge fund of funds firm The Richcourt Group last November, the Bala Cynwyd-based gatekeeper last week named Francesco Mainolfi to the newly created position of chief investment officer at Richcourt.

The approaches [between hedge funds and private equity] are different enough that done properly there are tremendous advantages to putting them together.

Francesco Mainolfi

According to Mainolfi, the former investment officer responsible for the $1.5 billion hedge fund programme at the World Bank Pension Fund, he joined Hamilton Lane because the firm shared his approach to the hedge fund business. “They are a big advocate of convergence,” Mainolfi noted. “We’ve had a lot of discussion about a hybrid product that would combine private equity and hedge fund investments into one vehicle.”

For example, Maniolfi notes, one can create a product that layers a private equity fund of funds vehicle with a hedge fund of funds vehicle to more efficiently allocate risk and extract alpha. Therefore, he adds, investors can enjoy the long-term benefits of private equity investing as well as the liquidity of a hedge fund and the “net short” downside protection of an active trading strategy.

Notes Maniolfi:  “The approaches [between hedge funds and private equity] are different enough that done properly there are tremendous advantages to putting them together.”

At The Richcourt Group, which manages more than $1.1 billion in hedge fund assets, Mainolfi will work with Pantelis Apessos, the company’s head of manager research. Hamilton Lane’s John Mensack is chief executive officer of Richcourt.

At the time of Hamilton Lane’s investment in Richcourt Group, Mario Giannini, the CEO of Hamilton Lane, noted that his firm had been looking to enter the hedge fund space for some time as many Hamilton Lane clients were interested in the sector and many of the private equity firms in which Hamilton Lane was invested were beginning to launch hedge fund programmes of their own.