Rather than create a hedge fund solution for institutional investors and hope chief investment officers like it enough to invest, industry veterans Jacob Walthour Jr. and Egidio "Ed" Robertiello went on a listening tour after launching Blueprint Capital Advisors LLC in 2015.
What they heard from pension investment officers was a cry for access to hard-to-find, talented emerging hedge fund managers, low fees, transparency, control over their investments and an easy way to invest.
The New York-based team set out to build a managed account platform populated by emerging hedge fund managers specializing in alternative fixed-income strategies, offered at what Mr. Walthour, Blueprint's CEO and a partner, called "bespoke prices."
To date, Blueprint has attracted $800 million in assets under management and under advisement, including up to $300 million from the New Jersey Division of Investment, which manages investments for the $73.6 billion New Jersey Pension Fund, Trenton, and $25 million from the $2.7 billion Chicago Policemen's Annuity & Benefit Fund.
A third investor, which Mr. Walthour said he can't identify, has committed $400 million to Blueprint.
Credit strategies topped the priority lists of the pension fund executives the pair talked with on their road trip and became Blueprint's investment focus, said Mr. Robertiello, the firm's CIO and a partner.
"Pension funds have a big focus on alternative fixed income as part of their search for current yield," Mr. Robertiello said, noting investors expressed interest in diversifying niche strategies such as health-care royalties, franchise lending, short-term direct lending, insurance-linked securities and real estate bridge loans.
Blueprint's target audience is primarily public pension funds, which often don't have sufficient in-house expertise to find smaller, less well-known credit managers and get a good fee deal, Mr. Walthour said.
"We look for niche managers running opportunistic strategies that often are capacity constrained. We negotiate fees and secure future capacity with promising small firms," Mr. Walthour said.
Size is important to alpha production, he said, stressing Blueprint is staying away from big middle-market buyout strategies and focusing on managers small enough to exploit smaller niches.
Blueprint's manager selection criteria is a minimum track record of three years and between $250 million and $1.25 billion in assets under management.
Mr. Robertiello declined to name the alternative fixed-income managers on Blueprint's investment platform because "many managers are in fundraising mode at full fees for their commingled funds so they wouldn't want the world to know they are cutting deals with us."
Blueprint's commingled credit hedge fund-of-funds strategy started trading July 1.
Regarding fees, Mr. Walthour said Blueprint has been successful in convincing the hedge fund managers on its investment platform to cut their fees to half the industry standard with a 1% management fee and 10% incentive fee. Investors in the funds on the platform only pay the 10% performance fee after hedge fund managers pass a 3% hurdle. As the size of the assets steered to platform managers grow, the management fee will be reduced, Mr. Walthour said, noting one manager has reduced its management fee to 65 basis points.
For more illiquid opportunistic credit strategies, no fee is charged on committed capital and performance fees are charged on a sliding scale depending on the level of returns, rising above the 10% base fee for outperformance of individual manager accounts.
Blueprint's own fee is between 30 and 50 basis points, Mr. Walthour said.
"Our managed account platform offers control and transparency to the investor and solves some of the structural problems institutions experience investing in hedge funds," Mr. Walthour said, stressing "our core values are to reduce fees on alternative investments and help institutions more efficiently manage their portfolios."
Messrs. Walthour and Robertiello and Catherine Beard, partner and director of research, have more than 70 combined years of experience in the investment industry, which they drew on in constructing Blueprint's specialized investment platform.
Mr. Walthour's background includes investment consulting, distribution for hedge fund managers and oversight of emerging hedge fund manager seeding activities.
Mr. Robertiello previously was senior portfolio manager responsible for investment of the $5.5 billion hedge fund portfolio of the $333.3 billion California Public Employees' Retirement System, Sacramento, and earlier managed hedge funds-of-funds programs at money management firms. Early in his career, Mr. Robertiello was director of pension and benefit investments at RJR Nabisco Inc., New York, when the defined benefit plan totaled about $3.5 billion.
Prior to joining Blueprint, Ms. Beard was most recently senior manager on the absolute-return team of the $60 billion UAW Retiree Medical Benefits Trust. Previously, she was a hedge fund research investment consultant and as a credit analyst for hedge fund and traditional money managers.