To staff a new, next-generation money manager, Hugh J.R. Willis and Alexander Khein deliberately targeted a very small segment of the investment management industry to convince the most talented quantitative fixed-income portfolio managers and financial engineers to join BlueCove Ltd., London.
The co-founders — BlueCove's executive chairman and CEO, respectively — started the systematic fixed-income shop in 2018 after leaving active fixed-income specialist BlueBay Asset Management LLP the previous year. Both men held the same titles at their former London-based employer, which Mr. Willis co-founded in 2001.
The firm intends to launch its systematic fixed-income strategy in the second half of 2019.
"Systematic fixed income is set to be the next iteration of fixed-income asset management," Mr. Willis said, noting that "the development of scientifically managed fixed-income strategies has lagged that of equities to date, due in large part to the asset class having historically been less global, liquid and data-rich. This has changed over the last decade, though, and scientific fixed income is now set to take significant share from traditional fixed income."
Industrywide, systematic fixed-income strategies have thus far attracted only about $100 billion, with BlackRock (BLK) Inc. (BLK) running about three-quarters of the total pot, Mr. Willis said.
BlackRock inherited its systematic fixed-income strategy through its 2009 acquisition of Barclays Global Investors, whose team pioneered the strategy about 15 years ago, Mr. Willis said.
"It probably was preordained that we would talk to the BlackRock team about joining BlueCove," Mr. Willis admitted.
BlueCove rounded up a total of 10 people with investment or financial engineering experience with either BlackRock's systematic fixed-income strategy or from BGI.
Eight people were hired directly from BlackRock last year, including five investment professionals who either worked on or collaborated with the firm's systematic fixed-income team and three quantitative engineers. Also hired was a person who left BlackRock's systematic fixed-income team in 2015 and another who had been on BGI's systematic fixed-income team until 2008.
Mr. Willis said this cadre of people found BlueCove's value proposition alluring, especially the prospect of working for a firm in which every employee is an owner, which has leveled the "silos" he said are characteristic of most fixed-income firms.
At BlueCove, he said, everyone in the firm works on the investment model or supports it through financial engineering, administrative, marketing and other roles, adding that "many of our employees really desired to be more a part of the center of a company."
Among BlueCove's investment professionals, six are from BlackRock and most worked within the firm's systematic fixed-income team.
Benjamin Brodsky leads BlueCove's investment team as co-chief investment officer. He was managing director and deputy CIO of systematic fixed income at BlackRock.
For portfolio managers and other investment staff who ran systematic fixed-income strategies at larger, multiasset class firms like BlackRock, "there is a lack of focus on the approach from the parent company because assets under management still are comparatively small," Mr. Willis said.
At BlackRock, for example, the approximately $75 billion in systematic fixed income the team managed represents just 1.5% of its total assets of about $6 trillion.
"Systematic fixed-income managers go from having a slightly orphaned status to the center of the universe in a smaller company," Mr. Willis said.
BlueCove also faced difficulty in finding experienced, sophisticated engineering talent to design and manage the investment and trading systems it needed simply because of the lack of depth in the talent pool.
But the BlueCove team found that financial engineering staff at other managers suffered from having to use legacy technology and were glad to move to a brand-new firm with cutting-edge systems, Mr. Willis said.
As part of the build-out of BlueCove's investment technology capabilities, David Willmer was named head of quantitative engineering. He was head of alpha technology at BlackRock. He was joined by two quantitative engineers from BlackRock.
BlueCove also hired investment and technology professionals from Citadel LLC, Robeco, Goldman Sachs & Co. and Aberdeen Standard Investments.
Crucial to BlueCove's future success is attracting institutional investors.
Ulrich Koall very recently joined the company as its first head of business development to build relationships with institutional investors and consultants.
"(Mr. Koall) is a highly experienced fund industry professional with an extensive track record of success in understanding client needs across both traditional discretionary and scientific fixed-income strategies," Mr. Khein said in a news release.
Mr. Koall was head of business development at TOBAM SAS.
The firm has nearly finished building out its staff, with 39 on board of the 50 people it intends to hire before the strategy launch.
The staff breakdown now is 37.5% portfolio managers; 37.5% quantitative and systematic financial engineers and technologists; and 25% management and operations personnel.
BlueCove's quantitatively managed approach will be offered in hedge fund, long-only and absolute-return strategies.
Paulina Pielichata contributed to this story.