SumZero was a revelation for Boothbay Fund Management analyst Frederick Richardson, who says the traditional process of finding and evaluating hedge fund managers is time-consuming and archaic. Even after he finds a likely talent, it can take weeks of e-mailing and calls to get all of the fund’s documents and other materials. Then he may travel to meet the manager in person, only to find five minutes into the interview that the fund isn’t a good fit.
Richardson recently discovered an obscure hedge fund on SumZero. When he proposed an investment, his boss was skeptical, asking him how he could trust a random fund based far from Wall Street in the U.S. Midwest. Richardson showed his boss all of the fund’s documents on the website, and eventually got approval to move ahead. After initially putting in $3.5 million, he has gradually increased his investment to $20 million.
"It’s pretty amazing that before you even meet the manager, I’ve already done all the background research," Richardson said. "It makes my job a lot more efficient. It saves me a lot of time."
Steve Keating, the director of investments for St. John’s University Endowment of $650 million, appreciates that the fund managers on SumZero can’t “cherry pick” their best research to present to potential investors. There’s a historical record of the return on the fund’s investment ideas, and it can’t be erased, no matter how poorly it performed. Keating occasionally logs on to keep tabs on young managers he thinks may eventually go big, but he’s dubious that truly talented fund managers would use SumZero.
For most investors, SumZero is an additional tool, not a replacement. Richardson said he won’t be using the banks any less, in part because they have a much larger network of fund managers. Katherine Boas, the executive vice president of Carl Marks & Co., a 90-year-old merchant bank that invests in emerging managers, has reached out to a few hedge funds on SumZero but hasn't made any investments.
"I think there will always be an element to this world based on relationships that even the best online tools are never going to be able to replace," she said. "But as a way to centralize information in a clear way, it’s a pretty good start."
The site seems tailor-made for hedgies just starting out—like Joshua Young of Bison Interests. It was his unique strategy that caught the university endowment’s eye, according to its managing director, who asked not to be identified to discuss private information. Most of the university’s investments in natural resources were of the same ilk, with overlapping positions in mid- to large-cap energy producers. Young’s hedge fund offered a different proposition—investing in smaller producers that are cheaper and betting that their value will rise once oil prices recover.
Still, persuading the endowment board and university to invest with an untested fund manager took some doing, the managing director said. No one gets fired for investing in a known firm like Greenlight Capital, he said, no matter how badly it performs. But if an investment in a small manager goes south, he said, the person who made the decision gets the blame.