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Liongate Capital Management to expand its Malta operation

Ben Funk: "We intend to expand in Malta, both in the finance and the research functions, but also in marketing as Malta has a very well-educated English speaking workforce which has a good understanding of hedge funds."

Ben Funk: "We intend to expand in Malta, both in the finance and the research functions, but also in marketing as Malta has a very well-educated English speaking workforce which has a good understanding of hedge funds."

Ben Funk, a partner at Liongate Capital Management, a hedge fund company which manages over $2.5 billion, was in Malta on Monday for the official opening of the company's local office. Liongate has been in Malta for the past 18 months and Dr Funk is full of praise for what the country has to offer in the financial services sector.

Besides being a low tax jurisdiction, he says, there are many advantages of setting up an office in Malta. "One is the very high quality of the regulation at the MFSA. We were able to meet individually and specifically with MFSA chairman Joseph Bannister before deciding which way we wanted to go, and I think he really made us feel comfortable. Having English as the business language makes a huge difference. The short distance to London is helpful, the time change is also helpful, and Malta European Union membership gives it an advantage over other jurisdictions."

Liongate's work in Malta revolves mainly around finance and research Dr Funk says he is fortunate to find very competent local employees most of whom are University of Malta graduates.

"I think the University of Malta is very good. We are in discussions with them in creating a hedge fund research centre where we can work closely with the university to promote research in fund management. This is something which is in the pipeline and we have been working on for the past six months. The university is very interested in developing a programme which promotes hedge funds," he says.

Liongate, he points out, has already hosted a large group of Maltese students to its offices in London to try and give them a better idea of what the company does.

"This is something we expect to continue to do. Besides recruiting from the University of Malta we also intend to offer internships. We intend to expand in Malta, both in the finance and the research functions, but also in marketing as Malta has a very well-educated English speaking workforce which has a good understanding of hedge funds."

Dr Funk describes the warm way he was welcomed in Malta as "quite flattering".

"Our official opening was very well attended by people from the university, the MFSA, the government, including the Prime Minister, accountancy firms and legal firms. It's nice to be so warmly welcomed into the community this way. We believe Malta will continue to grow as an important finance centre."

In a recent survey in the City of London, he says, Malta was identified as one of the jurisdictions which is most likely to grow as a finance centre and where most investment companies considered opening an office in the next two to three years.

Liongate's managed funds, he explains, are multi-strategy fund of funds.

"Rather than a single strategy hedge fund that buys specific stocks or bonds we comprise portfolios of hedge funds. So it's a fund that would invest in hedge funds, so there are several strategies".

Asked how the global financial crisis affected Liongate, he says the crisis obviously affected almost everyone in some way.

However, he adds: "We were fortunate in that we came into it fairly risk averse where we had been focusing on liquidity and did not have a lot of exposure to credit. In 2008 our main flagship lied in our multi strategy fund which was down between about 9.6 and 9.9 per cent. While that was still a significant loss we were down less than half the index which was down between 22 and 23 per cent for the year.

"So from a performance perspective it was okay but what is even more important is that during the crisis a lot of hedge funds became illiquid, in some cases investors wanted their money back, but we did not have a problem with liquidity. Any investors who wanted to redeem their holdings, in either the fourth quarter of 2008 or the first quarter of 2009, we paid out all proceeds in cash, and on time. I think this has really worked to our benefit. In the last 10 months we have raised about $1 billion of new capital."

Dr Funk says that hedge funds made a couple of mistakes "which hopefully will not happen again".

"I think what hedge funds did worst was that they failed to understand to match the duration of their investments with the duration they offer investors. As they gain confidence again as we come into what appears to be an improving environment, particularly with some growth in the US which looks slightly better than expected, I would hate to see hedge funds go back into illiquid assets.

"I do think that many funds have learned a lot, and it's nice to see that the transparency of the industry has improved a lot, so maybe they have learned they do need to become more transparent, and investors hopefully now have a better opportunity to understand with greater specificity what precisely they are investing in."

Asked about the GDP outlook for Europe in view of the recent problems in Greece and other eurozone countries, Dr Funk says Liongate has been cautious on both the US and Europe over the last 18 months and it appears that the US might be recovering faster than people had suspected.

"The same thing could be true in Europe. Without doubt there are things that still need to be done such as austerity measures. Governments in some countries are going to have to spend less money - that is never politically popular - but we do think Europe will pull out of the bottoming, but how long it will take we don't know. It's probably my view that they won't be as strong as emerging markets or North America. Short term we are slightly cautious, mid- to long-term we are more optimistic," he says.

Liongate was founded in 2003 and already manages over $2.5 billion in funds. What is the secret of its success?

"When we first set up we were a very small group of people managing a small amount of money but we had good chemistry and we really liked working together. I think we created a bit of an entrepreneurial spirit where we continued to try to attract individuals that worked together as a team to build something and watch something grow.

"We entered a market that was already pretty saturated but where we were able to differentiate ourselves somewhat was through a much more active approach to portfolio reality. We managed to shift the portfolio away from risk, like when pressure happens such as in 2008, and to lightly ease the portfolio into opportunities. By being entrepreneurial we've had fairly successful growth," he says.

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