A small group of seasoned asset managers have come together at the Montgomery Commons office park to form Stone Toro Asset Management and Zynin Capital Management to cater to institutional investors and high net worth individuals.
The typical client for Stone Toro is an institution or endowment, pension fund, a high net worth individual or their representative (worth $50 million or more), says Richard Jenkins, Stone Toro’s chief operating officer.
The firm is gearing up to launch a technology hedge fund this summer, the Stone Toro Alpha Tech Fund. A minimum $1 million investment will buy investors a piece of mostly small and mid-cap technology portfolios. The firm will will invite select investors to its office on Wednesday, June 8.
Hedge funds are similar to mutual funds in that they are a pool of investments. But hedge funds are not traded. Hedge fund investors also can do things public investors cannot, such as buy and sell securities and trade in options or bonds.
“Hedge funds by definition are a private investment tool,” Jenkins says. Hedge fund managers “can invest in anything they want, they’re not bound by the rules of the 1940 Investment Company Act.”
Jenkins grew up in Lakeport, California, in the heart of wine country, and attended a private boarding school in Sonoma County. His grandfather was an accountant and served as city manager and treasurer for St. Helena in northern California.
Jenkins attended Cal State Los Angeles — choosing that school because his father was the orthopedic physician for the football team. He majored in accounting and finance and graduated in 1981. Jenkins’ mother was an emergency medical technician.
“Some of my earliest memories are when we would go to visit my grandfather and I discovered that accounting was fun and natural for me,” he says. “When it came time to choose my profession, I decided why not choose something I’m good at?”
Jenkins began his career at PriceWaterhouse in San Jose and later started his own firm in Los Angeles for a high-net worth family of investors. “Managing their portfolio took me to the East Coast, and I ended up here during the real estate crash of 1990-91,” he says. “It was a bad time and I ended up doing a lot of real estate work out of the family office out here. I did merger and acquisition work as well.”
Jenkins took a job in 1996 at Merrill Lynch in Plainsboro and became head of global reporting and analysis with the finance group, reporting to the CFO. But after a few years, Jenkins found he missed the front office. He subsequently was recruited by UBS Financial Services.
Early in 2009 Michael Jarzyna, Stone Toro’s chief investment officer, was laid off from BlackRock and was looking to start his own hedge fund at the same time Jenkins had left UBS and was looking to start an independent office. The pair learned that Jeffrey Russo, a former investment manager at Merrill Lynch and portfolio manager at BlackRock, also was “looking for a place to hang his hat,” Jenkins says. “So we asked him to join us.”
Stone Toro Asset Management opened that November and now also employs James Cooney as director of trading, Anthony Busacca as director of business development, and Michael Baum as director of marketing and investor relations.
As a portfolio manager, Jarzyna determines the investment selections, “and which stocks are over-valued or under-valued,” Jenkins says. “There are often thinly traded stocks that are hard to find sometimes.” A lot of the trading is done electronically, Jenkins adds, noting Cooney “knows practically all the traders out there, and it’s his job to get the orders filled.”
“My role is to provide the systems, the compliance, and the finance work to make sure the lights are on and everyone can get to work,” Jenkins says. “Risk management falls under me, so I sort of take on the role of cop and accountant, and the technology role as well. I report to the investors to keep everything running smoothly.”
Russo, who has a long background in institutional investing, runs the event strategy. “You can run these strategies in a multitude of ways, and there are also lots of ways you can market these things,” Jenkins says.
Each of Stone Toro’s four partners all worked at Merrill Lynch. Jenkins held director-level positions in the finance and marketing groups of Merrill Lynch Investment Managers. Russo was responsible for global index, event, and derivative trading. Jarzyna served as an associate portfolio manager on the Merrill Lynch Special Value Fund, one of the largest small and mid-cap value funds in the United States. Cooney was responsible for trading four fund groups (with more than $8 billion in assets) at Merrill and BlackRock. He also served as vice president of technology trading at Merrill Lynch Investment Advisors.
Asked how things have changed in the hedge fund industry since he got involved, Jenkins says most of the money placed in hedge funds last year were in funds with more than $1 billion that had been in business for more than five years. Since the financial and real estate market collapse of 2008 many hedge funds have chosen to go out of business, he says.
“We’ve gone from about 9,000 hedge funds to about 5,000,” he says. “People think hedge funds are all about making a higher return on their investment, but sometimes it’s not. Sometimes it’s about having lower volatility or lower risk for your investment money.”
According to Baum, hedge funds generate income for the manager in two ways. One is through fees, which, typically are 1 to 2 percent of assets, similar to a mutual fund. “These fees cover operational expenses like overhead, facility, and research,” he says.
Performance is the other way the funds make money. “The fund may receive anywhere from 10 to 20 percent profits, which cover the portfolio manager and his team,” Baum says “If there is no positive return; there is no performance (profit share) paid to the team. “
The industry has seen very few start-ups of new hedge funds since 2008. “Last year the markets went into a stall as far as creation of new hedge funds,” he says. “If you look at the new hedge funds that actually launched with more than $50 million in assets, there were a handful last year.”
The reason there have been so few new funds is simple — there has not been much money to start them. The collapse, Jenkins says, “gave investors pause, made them say ‘Maybe I don’t know enough to invest in hedge funds.’”
The residual effect is that there now is a lot more transparency in the investment game. “I have to tell investors a whole lot more, and while it used to be common for investors to only be allowed out of a fund once a year, now, they have the ability to get in and get out on a monthly basis.”
So what makes the guys at Stone Toro, who started their hedge fund in exactly that bad environment, confident? “Our managers have developed proprietary processes that have been honed over many years,” Jenkins says. In this investing environment, coming on the heels of “the Great Recession,” investors are reticent about investing in any type of alternative investment product unless there is a track record and they have faith in the portfolio manager’s capabilities and integrity.
There also is the fact that the SEC requires most true hedge funds to be marketed only to accredited investors. Private investors for Stone Toro are required to have a minimum of $5 million of investable assets as well as an annual income greater than $200,000.
“Investors must have a certain level of sophistication and wealth in order to invest in products like those offered by Stone Toro,” Jenkins says.
#b#Zynin Capital Management (Stone Toro Asset Management)#/b#, 313 Commons Way, Princeton 08540; 888-778-5764; fax, 888-442-4407. Richard Jenkins, CEO. www.zynin.net