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Hedge fund bosses are well remunerated. The average established fund charges clients a 1.8 per cent annual management fee on top of taking 22 per cent of the profits (after clearing a hurdle rate), according to law firm Seward & Kissel.
To earn those sorts of fees, they often have to make some pretty bold calls and have the conviction to stick with them even when things are looking a little rough.
Take Camelot Capital Partners, for instance. The California-based fund founded by William Barker this month spent over £430,000 buying more than 125,000 shares in Asos, which this month reported an 83 per cent increase in its pre-tax loss to £379mn for the year to September 1. It topped this up with a further £2.37mn worth of purchases on November 18-20.
This takes Camelot’s total ownership to 18.4mn shares, or just above 15 per cent of Asos. Barker, who joined Asos’s board in September last year, said he was “very enthusiastic about the direction of the business”.
The shares bounced in early September after Asos announced the sale of its Topshop and Topman brands to a vehicle owned by Danish billionaire Anders Holch Povlsen, which allowed it to pay off £130mn of debt and complete a refinancing.
However, they have drifted back down since. Although the refinancing allowed it to push back the maturity date on £253mn of convertible bonds by two years to September 2028, with £73.6mn still falling due in 2026 and free cash flow only expected to be “broadly neutral” this year, adequate funding seems to be an issue that has been delayed rather than resolved.
While Barker’s fund has increased its position, there are still four other hedge funds that are shorting the shares — although their combined position is smaller, at 2.6 per cent.
Beeks executive trims stake
A lot of success in modern financial trading comes down to speed. The trader that moves first, or has the capability of doing so, is often the one that makes the money.
Beeks Financial Cloud operates servers near all the major stock exchanges, including New York, London, Tokyo and Amsterdam. It rents the space from Equinix, which gives Beeks close physical proximity to the exchanges, lowering the time needed for data to be transferred. There is also an analytics platform that analyses data such as order sizes, stock prices and spreads.
So far, high frequency trading firms have been happy to pay more for closer proximity. In the year to June, revenue increased 27 per cent to £28.5mn. Impressively, this growth is being delivered extremely profitably, with an adjusted cash profit (ebitda) margin of 38 per cent.
In the past year, Beeks has signed a £5mn contract with “one of the world’s largest banking groups” and a £2.7mn contract over a five-year period with a “tier one investment manager”. The market has reacted to this success, with Beeks’ share price rising 175 per cent over the past 12 months, giving it an expensive forward price/earnings ratio of 34 based on FactSet broker consensus.
Chief executive Gordon McArthur has decided to cash in on some of this success. Last week, he sold £779,000 worth of shares for what the company said was personal reasons. This sale has left him with a still-substantial 32 per cent stake in the company.
Beeks’ growth doesn’t appear to be slowing. The strong sales pipeline means analysts expect revenue to grow 37 per cent next year. In the financial world of marginal gains, customers appear happy to pay for a split second of extra speed.
