ALTERNATIVES

Borealis Strategic Capital grows out of Aurora

First there was Aurora Investment Management, and now there's Borealis Strategic Capital Partners, both adding their colors to the Chicago investment skyline.

Their common thread is Scott Schweighauser, formerly president of Chicago-based asset manager Aurora, and now launching Borealis, which plans to invest in young hedge funds.

Aurora returned $5 billion to clients last year and closed, with Mr. Schweighauser overseeing deconstruction of the operation that had made a business out of placing pension, endowment and other institutional investor money with hedge funds. He worked for Aurora CEO Roxanne Martino, and had helped her build Aurora into a firm that managed $14 billion at its peak in 2008.

But with investors trying to reduce costs, Aurora's fund-of-funds approach fell out of favor in recent years with net outflows every year since 2007, so its French money management parent, Natixis Global Asset Management, closed the operation last April.

Now, Mr. Schweighauser is starting over and focusing on a different aspect of the hedge fund industry. Borealis is seeking to provide seed capital to hedge fund managers in the early stages of building their firms. In exchange, Borealis says on its website that it will ask for "direct economic participation in their growth and success."

Mr. Schweighauser's new team grew out of his Aurora network, and includes Daniel Harris, who was Aurora's head of research; Patrick Sheedy, formerly an Aurora portfolio manager; and Christopher Gorter, former Aurora senior research analyst.

Mr. Schweighauser declined to comment on the new endeavor, citing Securities and Exchange Commission restrictions, but a white paper posted by Mr. Harris on the firm's new website provides a peek at the Borealis business thesis. It argues that the demand for capital from managers just starting hedge funds has increased over the past five years, at the same time as supply of such capital has dropped.

"When taken together, the shifts in both the demand for and supply of capital for early-stage hedge funds have created a far more favorable environment for seed capital providers today, as compared to five years ago," Mr. Harris said. "Now, investors with seed capital command a scarce resource with substantially increased value."

Borealis likely hopes to cash in by meeting the need for that scarce resource. Given his 22 years building up Aurora, Mr. Schweighauser has the experience to take on the venture.

"Borealis Strategic Capital grows out of Aurora" originally appeared on Crain's Chicago Business, a sister publication of Pensions & Investments.