James J. Waters, founder and former president of Waters Associates Inc., a Denver-based consultant, has left the consulting business in the hands of his son, Sean, and started his own hedge fund of funds.
Waters Capital Advisers LLC, Denver, has one fund so far, the Sonata Multi-Manager Fund LP, which Mr. Waters describes as a "low- to no-leverage" fund of funds that invests in managers ranging from long-short equity to convertible arbitrage to high-yield bond timing.
Mr. Waters said he has 14 separate investments: four hedge fund managers he has used personally; eight hedge fund managers culled from among several hundred listed with Hedge Fund Research Inc., Chicago; and two multimanager funds run by the Royal Bank of Canada that together include some 41 individual hedge fund managers.
Above all, Mr. Waters touts the transparency of his fund. He gets daily reports from the managers with which he has worked previously and from the HFR managers; weekly reports come from the Royal Bank managers.
Sees growing fund
The Sonata fund has about $10 million invested in it so far, none from institutional clients. However, Mr. Waters said eventually he sees the Sonata fund growing to more than $100 million and including money from pension funds, endowments and foundations. He even has designs on opening a second fund, tentatively named the Concerto fund, which would be more highly leveraged than the Sonata fund.
Mr. Waters, 61, said his desire to start a hedge fund business stemmed from his own experience in 2000. His personal equity portfolio took a big hit, but the loss was mitigated by his investments in hedge fund managers who specialized in market timing.
"I'm a believer in timing," Mr. Waters said. "In 2000, they made money while my stock portfolio went in the sewer. Timing prevents major losses in significant market downturns. Now, there are probably 9 million people who will say timing doesn't work, but it worked for me."
Waters Capital Advisers' relationship with HFR goes beyond just selecting hedge fund managers. Mr. Waters is working with the firm on a two-day educational seminar on hedge fund investing aimed at institutional investors in the Denver area. Mr. Waters said that as he has locally approached foundations, endowments and pension funds about investing in the Sonata fund, he has found a need for education.
"Nobody has been doing that in the Denver area," he said.